SUMMARY OF CONTENTS

NEW ENTERPRISE INCOME TAX LAW

On 16 March 2007, the Standing Committee of the National People’s Congress promulgated the Enterprise Income Tax Law of the People’s Republic of China 中华人民共和国企业所得税法. The Law harmonises the tax laws applicable to foreign and domestic enterprises. The new law marks a major change in PRC tax policy. Effective 1 January 2008, both domestic enterprises and foreign-invested enterprises (FIEs) will be subject to income tax at the unified rate of 25%.

The Law repeals both the Income Tax Law of the People’s Republic of China for Foreign Investment Enterprises and Foreign Enterprises 中华人民共和国外商投资企业和外国企业所得税法 and the Provisional Regulations of the People’s Republic of China on Enterprise Income Tax 中华人民共和国企业所得税暂行条例. Implementing rules for the Law are to be drafted by the State Council before 2008.

Tax residency
While previous income tax laws distinguished between domestic enterprises and FIEs and foreign enterprises, the new Law introduces a distinction between “resident enterprises” and “non-resident enterprises”. Residency under the Law is largely determined by the “place of management” of an enterprise. This is a major change. Previously residency was determined by the place of registration. Resident enterprises are now defined as those registered or effectively managed in the PRC. Non-resident enterprises are defined as those registered and effectively managed outside the PRC but with PRC establishments or PRC-sourced income.

Resident enterprises are taxed on income originating inside and outside of the PRC. Resident enterprises can use foreign income tax paid on earnings from investments outside the PRC as tax credits. Non resident enterprises have limited tax obligations and generally only owe tax on income derived from China or connected to its establishment in the PRC.

Tax rate
The previous income tax rate of 33% has been lowered to 25%. An official Summary of the Enterprise Income Tax Law (Summary) released a week before the Enterprise Income Tax Law explains that this rate was chosen to be competitive with the average international tax rate (28.6%) and the average rates of the countries immediately surrounding the PRC (26.7%).

Qualified high-tech enterprises and small businesses with low profit margins are eligible to enjoy preferential income tax rates of 15% and 20%, respectively. Hightech enterprises no longer need to be located in a High-tech Industrial Development Zone to enjoy the preferential tax rate.

Grandfathering of preferential policies
Though many of the preferential policies which enabled both foreign and domestic enterprises to enjoy lower tax rates are being rescinded, some enterprises will be able to continue to enjoy their current tax rate concessions while transitioning into the new policy.

Enterprises that have received their business licenses prior to 16 March 2007 will be subject to a gradual increase in their tax rate from 15 to 25% over the five years following the implementation of the Law. Enterprises that were not approved prior to 16 March 2007 will immediately be subject to the new tax system in 2008. Enterprises established in special areas set up for foreign economic cooperation and technical exchange and newly founded high-tech enterprises established in the aforementioned areas will also enjoy a transitional rate. The Law does not state how these rates will be increased; this is likely to appear in the forthcoming implementing rules.

Enterprises currently enjoying tax holidays may continue to enjoy the concession. If an enterprise enjoys a tax holiday that has not yet commenced, its tax holiday will be deemed to commence when the Law goes into effect on 1 January 2008.

Enterprises in certain encouraged sectors may be able to continue to enjoy preferential tax policies. The Summary notes that this refers to encouraged sectors in the Western region of the country, though this is not specified in the Law.

Incentives
The PRC is moving away from location-based tax incentives and most of them have been rescinded. Incentives in the new Law are predominately intended to encourage the development of new technologies and furthering investment in certain industries.

As mentioned above, enterprises in certain encouraged industry sectors will continue to enjoy preferential tax policies and high-tech enterprises
will be eligible for a lower tax rate. The Law further states that venture capital enterprises investing in certain encouraged investment sectors will be eligible for certain tax deductions.

Proceeds from technology transfers, investments in environmental protection, energy and water conservation and safe production, amongst other sectors, may be subject to income tax reductions or exemptions. Investments in agriculture, forestry, animal husbandry and fishing projects, and the construction of infrastructure are also eligible for income tax reductions or exemptions.

Deductible items
Permissible deductions have been harmonised for both FIEs and domestic enterprises. Many of the tax deductions available to FIEs have been retained from previous income tax laws, although they are now generally subject to reasonableness limitations. Enterprises are still allowed to deduct charitable donations, though subject to a cap of 12%. Sponsorship fees and unverified provisions and reserves, both to be further defined by the implementing rules, are no longer deductible. In line with the push for the development of industry, the Law allows enterprises to deduct R&D incurred in the development of new technology, merchandise and methodologies. Enterprises may also deduct the wages of the disabled and other types of workers whose hiring is encouraged by the State.

Withholding tax
Non-resident enterprises without establishments in the PRC or whose earnings do not have any connection with their establishments in the PRC will be subject to a 20% withholding tax on all such income. The tax will be withheld at the source, and the payer will serve as the withholding agent.

Previous income tax laws allowed tax reductions or exemptions on dividends, royalties, interest earned on loans to the State and the development of technologies and certain industries. While the Law states that taxes may be reduced or exempted in certain circumstances for non-resident enterprises subject to withholding tax, it does not define the specific situations.

Anti-avoidance
The Law introduces several measures to combat the avoidance of taxes:

• If the tax authority believes that the reported result of a business transaction is irrationally low, it has the power to adjust the total taxable income.

• Undistributed profits from a foreign company in a jurisdiction with lower income taxes that is controlled by a resident enterprise (controlled foreign enterprises) must be included in the enterprise’s total taxable income.

• An enterprise must provide information on business transactions between it and its affiliates, as well as more in-depth information on the affiliates.

• On any adjustment resulting from anti-avoidance investigation, the tax authority has the power to add interest to the increased taxable income total.

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Property Law finally issued

On 16 March 2007, the National People’s Congress issued the Property Law of the People’s Republic of China 中華人民共和國物權法. Effective on 1 October 2007, the Law defines the scope of property and property-related rights, such as use and possession, and sets out the protections afforded to State, collective and private property owners.

Background
Work on the Property Law first began in 1993. Since then, the Standing Committee of the National People’s Congress has deliberated on six different drafts of the Law, something unprecedented in China’s modern legal history, and an article was added to the constitution specifically protecting the private property of citizens. The Law has been and remains controversial with dissenters claiming that it violates the spirit of socialism and does not address the concerns of ordinary Chinese citizens. Proponents of the Law argue that its latest and final form upholds the fundamental principles of the socialist market economic system. This national-level legislation offers private property equal protection with state property.

Property
The term “Property” under the Law refers to both movable and immovable property. Varying rules apply to each type of property. “Property rights” under the Law includes the right to directly control and use a specific property, including the right to ownership, the right to proceeds and the right to use as security.

The Law provides that the ownership of immovable property shall be reflected through registration. These registrations shall be handled in the locality where the property is located pursuant to a national uniform registration system. The creation, alteration and transfer of rights in immovable property shall be subject to registration and shall only become effective upon registration. The Law, however, does not make registration a condition of the effectiveness of a contract between two parties regarding immovable property. The Law sets out the materials and information that will be required in connection with the registrations.

The Law also provides a basis for interested parties to examine the immovable property registration records and creates a mechanism for filing objections if the information contained in the registration is inaccurate. Pre-transaction notice filings are permitted under the Law to protect a purchaser’s property rights prior to the completion of the transaction and registration process. These provisions modify existing practice and should help standardise the property search and registration process in China.

With respect to movable property, title is generally transferred on delivery, although there are other different methods of establishing title depending on the circumstances as the Law makes a special provision for rights established by operation of by law or involving third party property possession.

The Law recognises three classes of property ownership: state-owned property, collectively-owned property and privately-owned property. The Law establishes who may exercise authority over the different types of property. It also identifies the major types of state-owned property, which includes most land and natural resources, and collectively-owned property, which includes, amongst other items, land and natural resources designated as collectively owned property by law.

Privately-owned property falls outside of the state-owned property and collectively-owned property designations. The Law recognises that corporate personalities and social organisations have the ability to own and exercise property rights.

Ownership
The Law recognises three classes of property owners: the State, collectives and private citizens. The three classes of property owners are
generally held to have rights on the following types of property:

• The State: Natural resources and infrastructure belonging to the State, property belonging to State agencies and public institutions.

• Collectives: Natural resources, infrastructure, cultivated land, and any other movable or immovable property owned collectively according to the law.

• Private citizens: Legal income, housing, lifestyle goods, tools and raw materials.

State-owned property is owned by the People as a whole. The State Council has the right to exercise ownership over all state-owned property on behalf of the State unless otherwise stated in related regulations. No individual or institution is allowed to take ownership of any movable or immovable property exclusively owned by the State.

Collectively-owned property is owned by the villages and rural organisation. The ownership of collectively-owned properties is exercised by the collective economic organisations or committees of the relevant village, town or urban centre. Collectively-owned properties cannot be
occupied, privately divided, withheld or damaged by any individual or institution.

The Law also protects the legitimate property rights of all property owners without distinction and such property cannot be occupied, taken or
destroyed by any other individual or institution.

Property owners can invest their property to establish enterprises and enjoy the power to select management, make important decisions and reap earnings in proportion to the assets contributed.

The Law addresses the handling of property disputes and the infringement of property rights. The Law provides for methods of recovering property rights. Mediation, arbitration or litigation may be employed to resolve any infringement of property rights. Where property has unlawfully been possessed by others, the rightful owner may request the return of the property, and it may also pursue damages. If property is improperly transferred by an unauthorised individual, the property’s legal owner has the right to recover the property. If the transferee accepted the transfer in good faith, at a reasonable price or has received property that is not required to be registered, the legal owner can request compensation for damages.

Rights of Use
Those who own the use right of another’s movable or immovable property, e.g. state-owned land or natural resources, shall enjoy the right to earn profits from, use and possess such property. Use right holders whose rights are affected or lost as a result of the reclamation or confiscation of the property use rights have the right to obtain compensation for the loss.

Holders of use rights of state-owned land have the right to construct buildings and affiliated facilities on such land. The right to use such land for construction can be established by transfer or sale by open auction. If the use right holder wishes to change the purpose of the land usage, it must first gain approval from the relevant administrative department. Unless otherwise stipulated in the law, the use right holder can transfer, exchange, donate, contribute as capital or mortgage its land usage rights so long as the contract for such does not go beyond the duration of the use rights.

The owner of immovable property who wishes to improve it through the use of another’s immovable property must first establish easement with the other party by contract. However, if the immovable property is being used by a use right holder, the owner of such property must first get confirmation from the use right holder.

Security
The Law creates more security interest options than in the Security Law, allowing a broader range of property rights to be pledged as security. Debtors may mortgage buildings, land use rights for construction, production equipment, raw materials, products, large items under construction such as buildings or aircrafts, vehicles, and other such property as security to repay a loan. Debtors may also pledge certain movable properties, including promissory notes; bonds; certificates of deposit; dock warrants; bills of lading; transferable fund shares and stocks; transferable trademark rights, parents, copyrights, and IP rights; and accounts receivable to creditors to serve as security for a debt. The Law also permits the pledge of future property in the form of a floating charge, and it addresses the handling of mortgaged or pledged property in the event of a default.

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New Anti-Money Laundering Law

The Anti-money Laundering Law of the People’s Republic of China 中華人民共和國反洗錢法 was adopted at the 24th Meeting of the Standing Committee of the Tenth National People’s Congress on 31 October 2006. Effective from 1 January 2007, the Law defines the institutions responsible for monitoring and investigating money laundering and the means at their disposal, and outlines the obligations financial institutions and certain non-financial institutions must shoulder in order to combat money laundering.

Definition and administration
Anti-money laundering measures are defined in the Law as those enacted to prevent any financial activity for the purpose of concealing or disguising the source and nature of criminal proceeds from narcotics, organised crime, terrorism, smuggling, corruption, bribery, fraud, undermining of financial management, etc.

The Law bestows the authority to organise anti-money laundering work nationwide on the “administration in charge of anti-money laundering under the State Council”. Although not stated in the Law, the People’s Bank of China (“PBOC”) is currently invested with this authority. The PBOC and its local branches are to exercise the key administrative role in China’s anti-money laundering efforts and they will be assisted by other government authorities such as Customs and the banking regulatory authority within the scope of their respective jurisdictions.

Obligations of financial institutions
All financial institutions in China must have anti-money laundering departments and must maintain records of their customers’ identity and transactions for a set period of time. If the financial institutions find an especially large or suspicious transaction, they are to report the transaction immediately to the Anti- Money Laundering Monitoring and
Analysis Centre under the PBOC. Any worker or institution submitting information regarding money laundering is also granted legal protection under the Law, and all information submitted shall be kept confidential and used only for the money laundering investigation.

Investigations
The PBOC and its provincial branch offices have been granted wide powers to investigate any suspect transactions and to compel financial institutions to cooperate with these investigations under the new Law. A temporary freeze may be placed on suspected accounts from which funds are to be transferred overseas. Further investigation shall determine
whether or not to continue the freeze.

International cooperation
According to the Law, the PRC shall begin to develop international cooperation to combat money laundering in accordance with international treaties or on the basis of the principle of reciprocity. The PBOC shall cooperate with foreign governments and related international organisations in combating money laundering, and shall exchange money launderingrelated data and information with relevant foreign anti-money laundering institutions.

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New regulations for franchises

On 6 February 2007, the State Council promulgated the Regulations for the Administration of Commercial Franchising Operations 商業特許經營管理條例. Although not stated in the Regulations, the Ministry of Commerce (“MOFCOM”) has indicated that the Measures for the Administration of Commercial Franchising Operations 商業特許經營管理辦法, issued on 30 December 2004 (as discussed in the 2005.1 issue of China Legal Update), will be repealed on the Regulations’ effective date, 1 May 2007. The Regulations are considerably shorter than the former Measures, leaving more room for the development of flexible business practices, while imposing stricter liability on illegal operations.

PRC entity requirement
The Regulations require that a franchisor intending to engage in franchising in China have operated at least two directly-operated businesses for more than one year. Previously, the Measures stipulated that a franchisor or its holding or subsidiary entity must have operated at least two stores in China for more than one year prior to franchising operations to domestic third parties. Whether this change implies permission for crossborder franchising by removing the jurisdictional requirement is still uncertain and will require further clarification when the Regulations go into effect. The Regulations specify that only enterprises (not individuals) can act as franchisors.

Sub-franchising
Sub-franchising are no longer directly addressed in the Regulations. Previously, the regulations permitted a franchisor to grant master
franchise agreement with a right of sub-franchise or direct franchise without the right to sub-franchise. The Regulations merely provide that
the franchisor’s consent is required for the transfer of the franchise.

FIE-specific requirements
Unlike the Measures, the Regulations do not contain any special provisions applicable to foreign investment enterprises. It therefore appears
that the Regulations apply equally to domestic and foreign-invested franchise activities.

Franchise contracts
The Regulations prescribe the contents of franchise contracts, including a minimum three years franchise duration, unless otherwise agreed by the franchisee.

Franchisors must file their franchising contracts within 15 days of signing either with the local approval authority, when engaging in business solely within the confines of a provincial-level administrative area, or with MOFCOM, when engaging in business across provincial borders. A list of all franchisors will be published and updated on MOFCOM’s website.

Disclosure obligation and liability
According to the Regulations, the franchisee has the right to terminate the franchise contract if the franchisor withholds relevant information or otherwise provides false information. If the franchisee experiences any loss caused by the franchisor’s misrepresentation or disclosure omission, the franchisor may be required to release the valid data or pay a fine.

Franchisors or franchisees that fail to satisfy the qualification requirements, leak information, or violate the stipulation of the Regulations may be required to either remedy the noncompliance or pay fines of a maximum of RMB 500,000. The business license of the offending party may be cancelled by the Administration of Industry and Commerce in serious circumstances.

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Transfer of state-owned property rights of enterprises must be on the public market

On 31 December 2006, the State Property Management Commission of the State Council and the Ministry of Finance jointly issued the Notice Regarding Relevant Matters in the Assignment of the State-owned Property Rights of Enterprises 關于 企業國有產權轉讓有關事項的通知 to further clarify issues arising from the implementation of the Provisional Measures for the Administration of the Assignment of State-owned Property Rights of Enterprises 企業國有產權轉讓管理暫行辦法 and the Notice on Relevant Issues in the Assignment of State-owned Property Rights of Enterprises 于關企業國有產權轉讓有關問題的通知.

Effective since 31 December 2006, the Notice clarifies that the transfer of state-owned property rights to an enterprise, economic organisation or person from Hong Kong, Taiwan, Macao or a foreign country (“foreign enterprise”) must be done publicly through a property rights exchange.

Before setting out the necessary conditions for the transfer, the transferor should consult the Catalogue for Guiding Foreign Investment in Industries 外商投資產業指導目錄 for guidance in determining the conditions of the transfer. If the assets are in the restricted or prohibited category,the property rights transaction organisation should make a noteof such in the transfer report to be published in economic and financialnewspapers and magazines at and above the provincial level.

When the principle recipient of the property rights transfer is a foreign enterprise, the transferor must report the transfer to related work departments for examination and approval. In the case of transfers by agreement to foreign enterprise, the transaction must occur according to the regulations stipulated in the Provisional Measures for the Administration of the Assignment of State-owned Property Rights of Enterprises 企業國有產權轉讓管理暫行辦法.

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Preferential policies for headquarters in Guangzhou

On 16 October 2006, the People’s Government of Guangzhou Municipality promulgated the Regulations of Guangzhou Municipality on Encouraging the Establishment of Headquarters and Regional Headquarters with Foreign Investment 廣州市鼓勵外商投資設立總部和地區總部的規定. The Regulations, which are effective for five years from the date of promulgation (i.e. until 16 October 2011), offer various preferential tax policies and financial incentives to foreign investors and those from Hong Kong, Macao, and Taiwan that establish headquarters in the Guangzhou municipal area.

Definition
Under the Regulations, a “headquarters” is defined as the sole head office established by a foreign investor in Guangzhou municipality that performs operational and management functions for enterprises invested in by the foreign investor in China or regions outside China. A “regional headquarters” is defined as the head office established by a foreign investor in Guangzhou municipality that performs operational and management functions for all or some of the enterprises invested in by the foreign investor in a certain region of China. The two types of headquarters may be set up as investment companies, management companies, research and development (R&D) centres or even manufacturing enterprises.

Business scope
In addition to its original business scope, a headquarters may engage in the following activities:

• investment and business planning in sectors that are open to foreign investment;

• marketing, including acting as an agent for the import/export business and commodity distribution or after-sales services for enterprises under its management;

• capital operation and financial management, including foreign exchange balancing;

• technical support and R&D;

• employee training and management and providing human resources assistance to enterprises under its management;

• information and logistics services;

• outsourcing services for overseas companies;

• other services as allowed by related laws and regulations.

Conditions
The Guangzhou Commission for Foreign Trade and Economic Cooperation (COFTEC) is responsible for approving and administering headquarters and regional headquarters. Existing holding companies may apply for recognition as a headquarters or regional headquarters. For a management company, R&D centre or manufacturing enterprise to be approved or recognised as a headquarters or regional headquarters, the following conditions must be satisfied:

• its parent company must have a good credit standing and assets of at least US $300 million one year prior to the application;

• it already manages or services at least three enterprises inside or outside China (either invested in by itself or pursuant to authorisation), whose combined paid up registered capital must total at least US $30 million;

• it has registered capital of at least US $2 million;

• it has independent legal person status.

Incentives
An enterprise recognised as a headquarters or regional headquarters shall be rewarded with an incentive of RMB 5 million or RMB 2 million, respectively. The purchase, rental or construction of office space shall be subsidised. Headquarters in Guangzhou that have been granted recognition prior to the promulgation of the Regulations shall also receive subsidies for additional office space development at 50% the rate of that for newly-recognised headquarters. Headquarters and regional headquarters shall enjoy preferential tax policies, including those for local enterprise income tax, urban real estate tax, business tax and import duties and VAT. They may also be entitled to other favourable policies, such as those available to exporters, R&D centres and hightech enterprises. With approval from the relevant authorities, they can centrally manage the foreign exchange capital of the enterprises managed under it in China and abroad. The Regulations further encourage headquarters to assist in the restructuring of other enterprises in Guangzhou by means of equity participation, merger and acquisition, contracting, trusts, leases and other methods.

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Personal income tax measures for high earners

The State Administration of Taxation issued the Measures on the Self- Declaration of Personal Income Tax (Trial Implementation) 個人所得稅自行納稅申報辦法（試行） on 6 November 2006. The Measures cover the filing process for those who satisfy one of the following conditions:

1. Annual income of 120,000RMB or more;
2. Wages or stipends earned from two or more sources within China;
3. Income earned outside China;
4. Any acquired taxable income without withholding;
5. Other circumstances as stipulated by the State Council.

The Measures are effective immediately for those satisfying condition one, and effective from 1 January 2007 for those satisfying conditions two through four. Those who do not have a permanent residence within China and who do not reside in China for one full calendar year are exempt.

The Measures define what can and cannot be used to tabulate the RMB 120,000 annual income figure, including, but not limited to, the following:

• Wages and salary;

• Remuneration for services;

• Royalties; and

• Interest, dividends and bonuses.

The Measures define the time limit for filing taxes; taxpayers annually earning upwards of RMB 120,000 must file their taxes within three months of the end of the tax calendar (i.e. by 31 March). Taxpayers may file their taxes with the local tax bureau by themselves or through an approved tax agency, and the papers may be submitted electronically, by post, or in person.

Filing forms and their instructions shall be available online as well as in the local tax administration office and designated post offices; both the forms and instructions are printed in English and Chinese.

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Updated rules for the takeover of listed companies

The China Securities Regulatory Commission (“CSRC”) issued the Measures for the Administration of the Takeover of Listed Companies 上市公司收購管理辦法 on 17 May 2006. Effective 1 September 2006, the Measures cover both takeovers and significant share acquisition activities in listed companies.

The Measures apply to acquisitions by investors of listed companies. They impose disclosure and tender offer obligations upon investors crossing certain shareholding thresholds. In determining whether the thresholds have been exceeded, the Measures aggregate the shareholding of other parties that are “working in concert” with the shareholder. The “working in concert” concept is specifically defined in the Measures.

Interest disclosure
Upon acquiring a 5% interest in a listed company, and on every subsequent increase or decrease of 5%, investors are to submit a report to the stock exchange, the CSRC and/or the local CSRC bureau where the company is registered. The percentage entered is based on the information required to be disclosed in the report varies with the size of the stake with more detailed disclosure required as the size of the stake increases. The disclosure bands are between 5-20%, 20-30% and greater than 30%. More complex and complete disclosure is required in the higher bands.

An investor who becomes the controlling shareholder of a listed company must hire a Chinaregistered financial consultant to render its opinion on the contents of the disclosure report. Investors who acquire 30% or more of the shares of a listed company must make a general or partial tender offer for the remaining shares or obtain a waiver from the requirements from the CSRC.

Takeover offer
Investors may make a voluntary tender offer for a company or may be obliged to make a tender offer upon crossing a certain equity threshold. Investors who make a voluntary offer may do so in either a general or partial offer to all of the shareholders of the target. Investors with interest in a listed company exceeding 30% are obliged to make a general or partial offer. The ability to make a partial offer is a major innovation under the new Measures. Previously, a full tender offer was required upon crossing the 30% threshold, and the compulsory tender offer was not infrequently designed to fail as the investor often did not wish to acquire all of the target’s equity.

An investor can also acquire shares through an acquisition agreement but if the acquisition exceeds 30% of the shares, the investor must either apply to the CSRC for a waiver of offer requested or submit a partial offer for the portion of the shares that exceed 30%.

Upon making an offer, the offeror must submit an offer report to the CSRC, local CSRC bureau and stock exchange. The investor must also compile and submit the indicative announcement of takeover, a financial consultant’s report and a lawyer’s report. Similarly, the board of directors of the target company must also compile and submit their own report, including the board’s takeover recommendation and the target company’s financial consultant’s report.

An investor may use cash, securities, a combination of cash and securities and any other approved means to pay for a takeover of a listed company. If the investor makes an offer in order to de-list the target or makes an offer following a waiver rejection by the CSRC, the investor must pay for the shares in cash.

If the offeror chooses to cancel the tender offer, it must notify the CSRC with its reason. The offeror will be barred from proposing a takeover to the same company for one year.

Management Buyout
Under the Measure, management buyouts require shareholder approval. A Board of Directors resolution is also required. The oard resolution in favour of the buyout must be adopted by a majority of the noninterested directors with at least a 66% approval from the independent directors, which must comprise at least 50% of the Board. If approved by the Board, the shareholders meeting will vote on the buyout, whereby a simple majority of votes held by present non-interested shareholders will allow the buyout to proceed. No assets of the company itself can be used to fund the buyout.

Indirect Takeover
An investor is considered an indirect investor while not a direct shareholder in a listed company obtains control of a shareholder. If its direct shares are between 5-30%, it should submit interest disclose reports as expected of other investors. If its indirect shares exceed 30% of the listed company, it should make a general offer or otherwise reduce its indirect shares to at or below 30%.

Waiver
Investors may apply to the CSRC for a waiver from the obligation to make an offer if the investor can prove that the transfer will not cause any change to the controlling party of the listed company, other conditions as stated in the Measures can be satisfied. If applicable, investors may instead apply for an expedite waiver, provided that they meet the necessary conditions. If an expedite waiver is not granted, the investors can choose instead to apply for a waiver. If a waiver is not granted, the investors must reduce their shareholding to 30% within thirty days of notification of the decision or otherwise make a general offer.

Financial Consultant
Both the offeror and target company must hire certified financial organisations to serve as financial consultant. Both are to submit reports to the CSRC (et al) on the financial status of the companies they represent and the takeover.

The investor’s consultant is also to serve as both an advisor and supervisor. It is expected to assist the offeror throughout the entire takeover process as well as for one year following the completion of the takeover in order to supervise the investor for compliance with the relevant laws and regulations.

The investor’s consultant will submit quarterly reports based on the company’s financial reports to the CSRC and local CSRC bureau over the year following the completion of the takeover. The local CSRC bureau will also supervise the listed company with on-site inspections and enquiries to the firm responsible for auditing the company’s accounts.

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Approval process for foreign-invested construction project service enterprises

On 22 January 2007, the Ministry of Construction and the Ministry of Commerce jointly issued the Regulations for the Administration of Construction Project Service Enterprises with Foreign Investment 外商投資建設工程服務企業管理規定. Effective 26 March 2007, the Regulations outline the approval process for construction project service enterprises with foreign investment and set out the permissible types of business for these enterprises.

Form and permitted business
Construction project service enterprises can be formed as Sinoforeign equity joint ventures, Sinoforeign cooperative joint ventures or wholly foreign-invested enterprises. Provided that the relevant requirements are satisfied, a construction project service enterprise with foreign investment may supply the following services: