FDI Law

The Manual for the Admission Administration Guidelines of Foreign Investment (2008) issued by Ministry of Commerce

Part I– Guidelines on the Review and Approval of Foreign-funded Commercial Enterprises (the “FFCEs”)

1. Application procedures and the limitation period for reviewing and approving applications of General Merchandise Distribution

Applicants who wish to (1) establish new FFCEs; (2) establish FFCEs through mergers and acquisitions (the “M&A”) of domestic commercial enterprises; (3) increase the distribution scope of its established FFCEs; and (4) reinvest to establish a commercial enterprise by the established FFCEs shall apply and submit their application materials to the commerce administrative department at the provincial level where the FFCEs to be established are registered. The commerce administrative department at the provincial level shall review and approve the Sino-foreign equity contract, its articles of association and the submitted materials. It shall render a decision on whether to approve the application within three months from the receipt of all application documents. If it approves the application, it shall grant an “Approval Certificate for Foreign-invested Commercial Enterprise”. If it disapproves the application, it shall provide its reasons in writing.

2. Key Points for Review and Approval

2.1 To establish a new FFCE, applicants shall pay attention to the following key points:

• (a) It shall clearly specify the name of the enterprise, its scope of business, the total amount of investment, its registered capital, and its resolution to resolve the difference between the total amount of investment and the registered capital. The business scope of the enterprise shall comply with the relevant requirements of the industrial policies, and the establishment of the enterprise shall comply with the relevant requirements for the municipal commercial plan;

  (b) It shall clearly specify the background of Chinese and foreign investors (especially the foreign investors) including the actual controllers and the investment status (both at the home country and abroad etc). If it involves domestic enterprises/a natural person who has conducted overseas investment to establish new enterprises within the territory, it shall provide the relevant approval documents/foreign exchange registration information of the overseas investment;

  (c) It shall clearly specify the form of investment and its duration, and foreign investors shall contribute to the capital by using their foreign funds. If it contributes by using its profit in RMB, it shall provide the corresponding documents of profit and taxation proofs;

  (d) If it involves an approval agreement for transfer of technology, the agreement shall be annexed to the contract for review and approval;

  (e) If it involves areas of trademark, brand, trade firm and horizontal competition etc., the contract and articles of association shall include the agreed upon corresponding contents;

  (f) If it involves matters of environmental protection and land, it shall be granted with approval by the relevant departments; and

  (g) It shall clearly specify the management of personnel and its contribution for employment.

2.2 To establish FFCE through M&A of domestic commercial enterprises, applicants shall pay attention to the following key points:

• (a) It shall clearly specify whether the enterprise has fully complied with the establishment formalities before the M&A (including that environmental protection and use of land procedures have been complied with); and shall specify the registered capital and its capital contribution, and the investment status, business operation, market share and ranking of the invested enterprises in China;

  (b) It shall clearly specify the total amount of investment, registered capital, and resolution to resolve the difference between the total amount of investment and the registered capital after the M&A. The scope of business shall comply with the relevant requirements of the industrial policies. If it is necessary to be reviewed for obtaining a prior approval or obtaining an opinion by a relevant entity, it shall submit the relevant approving documents or the relevant opinion in writing. The contract and articles of association shall be able to review the concerted content as stated above;

  (c) It shall clearly specify the subject of each investing party of the Sino-foreign M&A and especially the background information of foreign investors (including the actual controllers, investment status both at home and overseas, business operations, market share and ranking etc.), and whether the merged enterprise has the same actual controllers and affiliated relations;

  (d) It shall clearly specify the basis of the value for consideration of the equity transfer, subscription of the increased capital, and M&A of the assets with the payment method and time. If it involves transfer of the State-owned assets, archival filing procedures and on-market transaction of the State-owned assets shall be complied with and assessed. If the transfer agreement has not been performed yet as an on-market transaction, the basic principle is that it needs to be approved by the administrative department of state-owned capital above the provincial level. It shall clearly specify the usage of the increased capital if an enterprise has increased its capital for subscription;

  (e) If it involves settlement of employees, it shall specify whether it needs to be approved by the assembly of employee representatives or to be reported to the local labor department. For example, the settlement proposal should be approved by a local labor department if an employee is being terminated;

  (f) If it involves approval agreement for transfer of technology, the agreement shall be annexed to the contract for review and approval;

  (g) If it involves areas of trademark, brand, trade firm and horizontal competition etc., the contract and articles of association shall include the agreed upon corresponding contents;

  (h) If it involves foreign investors acquiring equity of the listed enterprises through M&A or increasing their holdings of equity interest in the listed enterprises, it shall report to the Ministry of Commerce for review and approval in accordance with the relevant rules of Strategic Investment; and

  (i) It shall fully understand the status of the enterprise fulfilling its obligation of social responsibility, for instance, management of personnel and its contribution for employment, or development status of energy conservation and emission reduction.

2.3 If there is an increased distribution scope of the established FFCEs,applicants shall pay attention to the following key points:

• (a) It shall clearly specify the total amount of investment, registered capital and its original capital contribution, and whether it has fully complied with the procedures of environmental protection and use of land;

  (b) It shall clearly specify whether the change of its business scope has involved for instance new investments or M&A of assets etc. If it is necessary to be reviewed for obtaining a prior approval or obtaining an opinion by a relevant entity, it shall submit the relevant approving documents or the relevant opinion in writing. The contract and articles of association shall be able to review the concerted content as stated above;

  (c) If an enterprise that is being categorized under the encouraged category has changed its status to the permitted category, it shall review and confirm whether its enjoyment of deduction and exemption of income tax policies have been reached to the expiration term, and whether it has a problem of taxes in arrears;

  (d) If it involves the special project management of merchandises under the Quota License of Import and Export, it shall apply the relevant initiation procedures; and

  (e) It shall fully understand the enterprise’ status of fulfilling its obligation of social responsibility, for instance, management of personnel and its contribution for employment, or development status of energy conservation and emission reduction.

2.4 If it involves reinvestment to establish a commercial enterprise by the established FFCE,applicants shall pay attention to the following key points:

• (a) The registered capital has been fully paid up;

  (b) It has gained profits;

  (c) Its business operation has complied with the applicable laws without breaching record;

  (d) The domestic investment by a foreign-funded enterprise shall, by analogy, be governed by the Catalogue of Industries for Guiding Foreign Investment;

  (e) If the business scope of the invested enterprises is being categorized under the restricted category, before being reviewed by the commerce administrative department at the provincial level, it shall first seek opinions from the relevant management departments;

  (f) If the invested enterprise is a foreign investment enterprise, it shall be governed by the Regulations of the Equity Modification of the Investor of Foreign Investment Enterprise; and

  (g) It shall fully comprehend the enterprise’ status of fulfilling its obligation of social responsibility, for instance, management of personnel and its contribution for employment, or development status of energy conservation and emission reduction.

Part II –Guidelines on the Review and Approval of other types of foreign-funded enterprises

1. Foreign-funded Road Transport (Passenger Transport) (the “FFRT(PT)”)

1.1 Application procedures and limitation period for reviewing and approving application

Applicants shall firstly apply to the communications department of the place where the enterprise to be established is registered. Within thirty days upon receipt the letter of approval for project-filing or approval for alteration of FFRT enterprises being issued by the communications department of the State Council, the commerce administrative department of the place where the enterprise to be established is registered shall perform a prior review of the establishment application of FFRT enterprises. Applicants shall then apply to the commerce administrative department at the provincial level to grant an approval for project-filing or approval for alteration of FFRT enterprises. The commerce administrative department shall be responsible for review and approval; it shall render a decision on whether to approve the application within thirty working days from the receipt of all application documents. If it approves the application, it shall grant an “Approval Certificate for Foreign-invested Commercial Enterprise”.

1.2 Application conditions

The proposed FFRT(PT) Services shall comply with the policies on road transport development and the requirements for enterprise qualification, and shall comply the requirements of the development planning of road transport services being formulated by the department in charge of transportation of the place where the FFRT enterprise to be established is located. All investors shall invest by using their self-owned assets and shall have good reputation.Foreign investors who invest in road transport and passenger transport services shall also meet the following conditions:

• (a) At least one party among the principal investors shall be an enterprise that has been engaging in the road passenger transport services within the territory of China for more than 5 years;

  (b) The proportion of foreign shares shall not be more than 49%;

  (c) 50% of the registered capital of the enterprise shall be used in the construction and reconstruction of the infrastructure of passenger transport; and

  (d) The vehicles being used shall be passenger cars of middle level or above.

2. Urban Planning Services Invested by Foreign Investors

2.1 Application procedures and limitation period for reviewing and approving application

Applicants shall apply to the administrative departments of commerce of the people’s governments of the provinces, autonomous regions and municipalities directly under the Central Government of the place where the Foreign-funded Urban Planning Services Enterprise (the “FFUPSE”) to be established is located. Within ten days upon receipt the preliminary reviewed application materials, the commerce administrative department at the provincial level shall send the application materials to the construction administrative department to seek opinion, and it shall provide opinion within thirty days from the receipt of all application documents. The commerce administrative department shall render a decision on whether to approve the application within thirty days from the receipt of all application documents. If it approves the application, it shall grant an “Approval Certificate for Foreign-invested Commercial Enterprise”.

2.2 Application conditions

• (a) The foreign party is an enterprise or professional technician engaging in urban planning services in its/his home country or region;

  (b) Having more than twenty professional technicians who are specialized in urban planning, construction, road traffic, gardens and landscape, and the relevant engineering etc, among whom, the foreign professional technicians shall account for no less than 25% of all the professional technicians, there shall have at least one foreign professional technician specializing in urban planning, construction, road traffic, garden and landscape respectively;

  (c) Having technical equipment and fixed business operating site in conformity with the state provisions; and

  (d) Meeting the relevant laws and regulations of China governing foreign-funded enterprises.

3. Import and Export Commodity Inspection and Authentication Institutions

3.1 Application procedures and the limitation period for reviewing and approving applications

Applicants shall apply to the Administration of Inspection and Quarantine at the place where the Foreign-funded Import and Export Commodity Inspection and Authentication Institutions (the “FFIECIAI”) is to be located. It shall complete a preliminary review within ninety working days and shall render a decision on whether to approve the application. Applicants shall then bring the approval to establish a FFIECIAI being issued by the Administration of Inspection and Quarantine and apply to the commerce administrative department at the provincial level. The commerce administrative department shall render a decision on whether to approve the application within ninety days from the receipt of all application documents. If it approves the application, it shall grant an “Approval Certificate for Foreign-invested Commercial Enterprise”. If it disapproves the application, it shall provide the reasons in writing.

3.2 Application conditions

To apply for the establishment of a FFIECIAI, the following conditions shall be met:

• (a) The foreign investor of the FFIECIAI shall be an independent registered institution who has been engaging in inspection and authentication business lawfully in China for more than three years;

  (b) The Chinese investor or the investing party of the Sino-foreign joint venture or Sino-foreign cooperative FFIECIAI shall be in the identity of a third party, and be an independent institution who has been engaging in inspection and authentication business lawfully in China for more than three years;

  (c) The institution’s registered capital shall be no less than the amount of RMB equivalent to USD$350,000;

  (d) The institution shall have the corresponding conditions for testing and the technical resources suitable for the inspection and authentication business; and shall have a fixed domicile business operating site as an inspection and testing place with the ability to conduct transnational business;

  (e) The institution shall have a quality management system conforming to the relevant general requirements;

  (f) The professionals engaging in inspection and authentication shall obtain their practicing qualifications in accordance with the relevant provisions of the State Administration of Quality Supervision, Inspection and Quarantine, and the number of persons who have obtained the practicing qualifications shall be no less than 2/3 of the total number of the persons of the institution; and

  (g) Other conditions as required in any law or administrative rules.

4. International Shipping Transportation/Agency

4.1 Application procedures and limitation period for reviewing and approving application

Applicants shall apply to the administrative departments of communications at the place where the Foreign-funded International Shipping Transportation/Agency Services (the “FFIST/AS”) is to be located. It shall complete a prior review and render a decision on whether to approve the application. Applicants shall then bring the approval to establish FFIST/AS being issued by the administrative departments of communications and submit the application to the commerce administrative department. The commerce administrative department at the provincial level shall review and render a decision on whether to approve the application within ninety days from the receipt of all application documents. If it approves the application, it shall grant an “Approval Certificate for Foreign-invested Commercial Enterprise”.

4.2 Application conditions

To apply for the establishment of FFIST/AS, the following conditions shall be met:

• (a) Having at least two persons among the senior management executives of the enterprise with more than three years experience in international maritime transportation business operations. The term "senior management executives" refers to Chinese citizens who have obtained secondary or higher technical or academic titles and serve as departmental managers or above in enterprises engaging in the international maritime transportation business or auxiliary businesses;

  (b) Having a fixed business operating place and have the necessary business facilities including the ability to have electronic data interchange with ports, the department of Customs and other departments;

  (c) In case of establishing by ways of a Sino-foreign equity joint venture or a Sino-foreign cooperative joint venture, the proportion of foreign investment shall not exceed 49%; and

  (d) Other conditions as prescribed under the relevant laws or administrative regulations.

5. The Personnel of Certification and Certification Related Training and Consulting

5.1 Application procedures and the limitation period for reviewing and approving applications

Applicants shall apply to the Administration of Inspection and Quarantine at the place where the Foreign-funded Personnel of Certification and Certification Related Training and Consulting Institutions (the “FFPCCRTCI”) is to be located. The inspection and quarantine department, the Certification and Accreditation Administration of the People’s Republic of China (the “CAAPRC”), shall review and grant an approval.The commerce administrative department at the provincial level shall render a decision on whether to approve the application within ninety days from the receipt of all application documents. If it approves the application, it shall grant an “Approval Certificate for Foreign-invested Commercial Enterprise”.

5.2 Application conditions

• (a) Having a fixed operating place;

  (b) Having its registered capital, business operating requirement, human resources and technical resources correspond with its business operation;

  (c) Having documents of quality supervision in conformity with the relevant requirements for personnel certification institution, certification related training institution or certification related consulting institution; and

  (d) Other conditions as required under the relevant laws and regulations of CAAPRC etc.

Part III– Guidelines on the Review and Approval of Foreign-funded Joint Stock Company Limited

1. Foreign-funded Joint Stock Company Limited

1.1 Reviewing and approving department and its authority

Alteration of enterprises being established under the encouraged or permitted industry with a total registered capital of less than US$100 million and enterprises being established under the restricted industry with a total registered capital of less than US$50 million shall be subject to the review and approval by the commerce administrative department at the provincial level. Alteration of enterprises being established under the encouraged or permitted industry with a total registered capital of more than US$100 million and enterprises being established under the restricted industry with a total registered capital of more than US$50 million shall submit the documents of alteration to the commerce administrative department at the provincial level. It shall then report the application to the Ministry of Commerce for review and approval.

1.2 Applicants who are restructuring foreign-funded enterprises into joint stock companies shall pay attention to the following areas:

A Foreign-funded Joint Stock Company Limited shall be a legal business person whose total capital stock is being made up by equal value shares being contributed and held by both domestic and foreign shareholders. The company bears its liabilities with its total assets and each shareholder bears the liabilities in proportion to the shares held.

• (a) A Foreign-funded Joint Stock Company Limited which is being established by way of promotion shall have its registered capital be at least RMB 30 million. The promoters shall pay in a lump sum of the total value of the subscribed shares within ninety days after granted approval for establishment of the joint stock company.

  (b) If the established foreign-invested enterprise including Sino-foreign equity joint venture enterprise, Sino-foreign cooperative joint venture enterprise or foreign-funded enterprise etc. has recorded profits in the past three consecutive years, it can apply to change its status into a Foreign-funded Joint Stock Company Limited. However, the period of preferential policy for tax deduction shall not be recalculated.

  (c) If the established stated-owned enterprise or collectively owned enterprise has operated more than 5 years, and recorded profits in the past three consecutive years, the foreign shareholder can purchase in a freely convertible foreign currency and hold the shares of more than 25% of the registered capital of the enterprise. The distribution scope of the enterprise shall also comply with the policies governing foreign-invested enterprises. It can also apply to change its status into a Foreign-funded Joint Stock Company Limited.

  (d) The established stock limited company can change its status into a Foreign-funded Joint Stock Company Limited by other ways e.g. increasing its registered capital for subscription, changing of shares, issuing the domestically listed shares in foreign currencies or the shares listed overseas in foreign currencies etc.

  (e) As a general rule, the Chinese promoter of Foreign-funded Joint Stock Company Limited shall not be a natural person. However, if the Chinese natural person originally came from a shareholder of a domestic company within the territory of China, and the Chinese natural person became the Chinese investor of a Sino-foreign joint venture enterprise because of foreign investors’ M&A of a domestic enterprise, that Chinese investor can reserve his identity of shareholder.

  (f) A foreign company, enterprise, and any other foreign economic organization or an inpidual can be a foreign shareholder of a Foreign-funded Joint Stock Company Limited including an overseas limited partnership enterprise and any other non-corporate organizations.

Administrative Measures for Overseas Investments

The Ministry of Commerce (“MOFCOM”) released the Administrative Measures for Overseas Investments (the “Measure”) on March 16, 2009, which become effective on May 1, 2009.

The Measure stipulates that MOFCOM and the provincial commercial authorities shall issue the approval on enterprises’ overseas investments. Moreover, enterprises shall submit the applications and apply for approval by MOFCOM according to relevant regulations for undertaking the following overseas investments:

• (a) Investing in foreign countries which have not yet set up diplomatic ties with China;

  (b) Investing in specific countries or areas which are listed by MOFCOM together with the ministry of foreign affairs and relevant departments;

  (c) Overseas investments by Chinese parties of more than US$100 million;

  (d) Overseas investments which have an influence on the interests of several countries or areas;

  (e) Setting up an overseas company for special purposes. This refers to an overseas company which is directly or indirectly controlled by the enterprise in order to get their current domestic company listed overseas.

Furthermore, the Measure stipulates that local enterprises shall submit the applications and apply for approval by the provincial commercial authorities according to relevant regulations for undertaking the following overseas investments:

• (a) Overseas investments by Chinese parties of more than US$10 million, but not more than US$100 million;

  (b) Overseas investments in energy and minerals;

  (c) Overseas investments which require local investment promotions.

The Measure provides that the enterprise shall fairly value its status, capability, and the investment conditions of the host country. The enterprise must not make rash oversea investment.

KW Comments: The Measure promotes and regulates overseas investments and the provincial commercial authorities are delegated more authority for examination and approval. MOFCOM will only reserve the authority for examination and approval on certain major and sensitive investments, including overseas investments with an amount of more than US$100 million and investments in certain countries. The Measure simplifies the procedures for examination and approval.

Real Estate Enterprise Income Tax

On March 6, 2009, the State Administration of Taxation (“SAT”) issued the Measures for the Enterprise Income Tax Treatment for Real Estate Development and Operation Businesses (GuoShuiFa [2009] No. 31) (“Measures”), regulating the enterprise income tax (“EIT”) matters of the real estate enterprises. The Measures took effect retroactively as of January 1, 2008.

1. Reduction of the Minimum Estimated Assessable Gross Profit Ratio (“EAGPR”)

To relieve the liquidity pressures faced by the real estate enterprises and to stimulate the economy, the Measures, compared with the former rules, reduce the minimum EAGPR for development project of non-economically affordable houses by 5%. In particular, under Article 8 of the Measures, the minimum EAGPRs are specified as follows: (a) the EAGPR shall not be lower than 15% if the development project is situated at the downtown or suburb of a city at the locality of the People’s Government of the province, autonomous region, municipality directly under the Central Government or city under separate state planning; (b) the EAGPR shall not be lower than 10% if the development project is situated at the downtown or suburb of the prefecture city; (c) the EAGPR shall not be lower than 5% if the development project is situated at any other region.

Besides, the EAGPR is 3% for such development projects as economically affordable houses, price-limited houses and renovated dilapidated houses.

2. Recognition Principles for Assessable Cost Object

The Measures introduce the recognition principle for assessable cost object.The term “cost object” refers to a development project to which all costs and expenditures incurred in the course of the development will be attributed. In specific, the recognition principles include the following categories:

• (a) Salable principle. Where the development project is salable, it should be assessed as a separate cost object;

  (b) Classification and grouping principle. A group of development projects may be regarded as one single cost object if such group meets the following conditions: (i) the projects are located in the same place; (ii) the completion time is close; (iii) there are no obvious differences in the product structure or type among the development projects in the group;

  (c) Functional differentiation principle. Where certain parts of the development projects are relatively independent and have different use functions, they should be separated as different cost projects;

  (d) Pricing differences principle. Where the sales prices of the development projects vary greatly due to the differences in product categories or functions, such development projects should be regarded as different cost objects;

  (e) Cost differences principle. Where the sales prices of the development projects vary greatly due to the cost differences, such development projects should be regarded as different cost objects;

  (f) Differences in interests and rights principle. Where the development projects are entrusted and constructed on behalf of an entrusting party or developed cooperatively by various parties, the cost object will be identified and determined by reference to the above-mentioned principles.

The cost object should be determined before the start of construction and filed with the in-charge tax authority. Once determined, the cost object can not be changed randomly or intermingled one with another, unless being approved by the in-charge tax authority.

3. Indirect Cost Apportion Method

The Measures set forth four apportion methods to allocate common costs and indirect cost that cannot be directly matched to certain cost objects. The methods include: land coverage percentage method, building space method, direct cost method and budget cost method. Besides, the Measures expressly state that the land cost should be apportioned by applying land coverage percentage method and the other apportion methods can not be used without obtaining prior consent from the in-charge tax authority. The development costs of public supporting facility should be apportioned under the building space method.

4. Deduction of the Accrued fees

Given the fact that construction of a development project may take a long time, and some costs therefrom may not be fully deducted before the settlement and payment of the annual enterprise income tax but will definitely incur in the future, the Measures allow the accrual of certain fees:

• (a) where a development project has not been finally settled and thus the invoice for the full amount has not been obtained, subject to sufficient proof, the balance of the invoice may be accrued to the extent of 10% of the total amount of the project;

  (b) the construction costs of the unfinished public supporting facilities may be accrued in accordance with a reasonable budget;

  (c) the fees relating to application for approval and construction and the property improvement fees may be accrued.

5. Deduction of Offshore Commission

Where a real estate development enterprise entrusts an overseas enterprise to sell the products, no more than 10% of the sales revenue are deductible.The excessive amount is not deductible.

Meanwhile, under the Provisional Regulations on Business Tax effective as of January 1, 2009, the overseas enterprise shall pay business tax at 5%.

KW Comments: Before 2008, China had a dual EIT system for foreign investment enterprises (“FIEs”) and Domestic Investment Enterprises (“DIEs”), accordingly, GuoShuiFa [2001] No. 142 and GuoShuiGa [2006] No. 31 were issued to regulate the enterprise EIT issues for foreign investment real estate enterprises (“FIREEs”) and domestic investment real estate enterprises (“DIREEs”) respectively. Now, consistent with the unification of the general EIT rules, the Measures unify the EIT treatment for FIREEs and DIREEs.

By reducing the minimum EAGPR, the Measures may more or less relieve the liquidity problems faced by the real estate enterprises under the current financial crisis, which also reflect the government’s micro-control policies; by introducing the recognition principle for assessable cost object, the Measures provide guidance for the deduction of the costs and fees incurred by real estate enterprises for the EIT purposes.

Local Laws

Zhejiang Province

Notice of the General Office of People’s Government of Zhejiang Province on Printing and Distributing Regulation of Venture Capital Investment Guide Funds of Zhejiang Province

(No.〔2008〕79 of the General Office of the People’s Government of Zhejiang Province, March 18, 2009)

The Regulation stipulates the following aspects:

• (a) The guide funds, totaling RMB 500 million, exists as an equity fund of the fund management institution and will be invested year by year. The guide fund will make investments mainly by means of equity investments in different stages, follow-up investments, and other methods. The fund in the form of follow-up investments shall not be more than 30%.

  (b) The Zhejiang Provincial management committee of venture capital investment guide funds will lead operation of the guide province. Zhejiang Financial Development Company will invest and establish the Zhejiang Provincial Venture Capital Investment Guide Fund Management Co. Ltd. (Guide Fund Management Company), which will be responsible for everyday management and investment operations.

  (c) The guide fund will focus on guiding venture capital investment funds or venture capital investment enterprises to invest in areas of electronic information, biological medicine, advanced manufacturing, new energy, environmental protection and energy conservation, high-efficiency agriculture, modern service industries, etc., which comply with the planning of Zhejiang Province high-tech industrial development. It will also help guide investment in small and medium-sized enterprises which are in start-up periods, focusing on technical innovation and high risk high reward investments. However, the guide fund shall not be used for other forms of investment such as loans, stocks, futures, real estates, funds, corporate bonds, financial derivatives, or for other expenditures such as sponsorships, donations and so on, or for any guarantees for enterprises other than venture capital enterprises. Idle funds shall only be deposited in banks or used to purchase treasury securities.

  (d) The Regulation further defines conditions in which guide funds invest in capital venture investment enterprises, invest in other forms of enterprises and enterprises in start-up periods by means of stage equity, principles in which capital venture investment with equity of guide funds make investments, and contents that shall be censored by the guide fund management company on projects intended to be further invested.

KW Comments:The Regulation intends to take advantage of the guide functionof financial funds on venture capital investment funds and venture capital investment enterprises, which will support the development of venture capital investment enterprises to invest in certain industry encouraged by the central and local government, magnify the power of venture capital investment funds and venture capital investment enterprises, guide social funds into the area of venture capital investment and facilitate the state to adjust and control on industry development in macro level . However, the implementation and execution of the Regulation shall remain to be further observed.

Guangdong Province

SZSE promulgates Detailed Rules on Risk Administration of Overseas Securities Institutions Dealing B-shares

The SZSE promulgated the Detailed Rules on Risk Administration of Overseas Securities Institutions Dealing B-shares on 3 March (hereinafter referred to as Detailed Rules). The Detailed Rules is formulated in accordance with the Provisional Regulations on the Administration of Qualifications of Domestic and Overseas Securities Institutions Dealing in Shares for the Purchase of Overseas Investors and Trading Rules for Shenzhen Stock Exchange and other rules in relation to the business of the SZSE. Detailed Rules provide that overseas institutions dealing B-shares shall appoint a representative who reports events happening to its overseas parent company or holding company in a timely manner. Overseas institutions shall establish monitoring systems which assist the SZSE in monitoring abnormal transaction, as well as providing authentic, accurate and complete materials required by the SZSE. Meanwhile, the Detailed Rules make clear the circumstances and measures that the SZSE would announce to suspend or terminate the dealing authority of overseas B trading units. This includes suspending or terminating purchases of certain or all B-shares listed in the SZSE while allowing selling, suspending or terminating selling of certain or all B-shares listed in the SZSE while allowing purchase, and suspending or terminating both purchase and selling of certain or all B-shares listed in SZSE.

KW Comments: Detailed Rules aims to improve the risk control and management of overseas securities institutions dealing B-shares and maintain the normal trading order of the B-share market. Through making clear the report obligations of overseas institutions, establishing assisting monitoring systems of the overseas institutions, and explicit stipulations on the circumstances of suspending or termination the trading authority of overseas B trading units, the Detailed Rules will be beneficial to regulating the trading conduct, as well as facilitating the healthy development of the B-share market.