Laws of the People's Republic of China

General Office of the State Council

Circular of the General Office of the State Council on Doing Well Related Works of Carrying out and Implementing the Amended Company Law and Securities Law

Guo Ban Fa [2005] No.62

People's Governments in all provinces, autonomous regions, and municipalities directly under the Central Government, ministries and commissions of the State Council, and organs directly under the State Council:

The amended Company Law of the People's Republic of China and Securities Law of the People's Republic of China has been adopted at the 18th session of the Standing Committee of the 10th National People's Congress of the People's Republic of China on October 27, 2005, and will enter into force as of the date of January 1, 2006. The Company Law and Securities Law are important laws in building and improving the socialist market economy system, and also fundamental laws in regulating the running of the capital market. In order to guarantee the smooth implementation of these two Laws and with the approval from the State Council, this circular is hereby formulated on relevant issues as follows:

I.

It is imperative to fully understand the significance of implementing the amended Company Law and Securities Law. Based on the summarization of the practices in recent years and in accordance with the change and operation rules in China's current economic life, the amended Company Law and Securities Law make relatively big readjustments, supplements and revisions on the former legal regimes for company and securities, and conduct improvements and innovations on relevant regimes. Accommodating the objective requirements of the reality, the amendment of these two laws is beneficial for the deepening of the economic system reform and the promotion of economic development, and for the improvement of the socialist market economy system. A good implementation of these two amended Laws will play important roles in the fostering of mature and perfect market subjects, in the regulation and promotion of the development of companies, in the protection of lawful rights and interests of companies, shareholders, creditors, employees etc., in the enhancement of the quality of the listed companies, and in the promotion of the stable and healthy development of the capital market. People's Governments at all levels in all places and relevant authorities of the State Council shall fully understand the significance of implementing the amended Company Law and Securities Law and do well relevant works.

II.

It is imperative to deeply carry out the works of study and publicity, and strengthen the training of affairs. The amended Company Law and Securities Law make relatively complete revisions on the registered capital system of the company, the management structure of the company, the protection of the rights of the shareholders, the financial and accounting system, the merger and divide system etc., adding up provisions on such fields as the negation of juristic personality, the norms on the association relations, the cumulative voting, the independent director etc. The amended Securities Law strengthens the internal control system of the securities company, consolidates the regulatory power of the securities supervisory and managerial authorities, improves the legal responsibilities for activities in violation of securities laws and regulations, adds up such new mechanisms as the securities issuing and listing recommendation, the protective funds for securities investors, the pre-disclosure of securities issuing and transactions etc., so as to create conditions for the stable advance of diversified operation in the financial industry, for the creation of securities derivatives, for the advance of futures trading of securities, for the widening of channels for capital's entering into the market as stipulated, and for the gradual carrying-out of securities financing etc. These innovations in the system need wide and deep studies and publicities so that the whole society can understand and master them. The Legislative Affairs Office shall, in cooperation with other authorities, formulate concrete programs for study and publicity, and strengthen, by means of organizing various kinds of lectures and symposiums etc., the training of relevant personnel so as to change the functions and working styles of the governments to administering according to law. The press and media shall conduct publicities on the backgrounds, the main contents, and the significance of implementation of the amended Company Law and Securities Law and on the various authorities' effective measures for carrying out and implementing these two Laws so as to make positive guidance on the hotspot issues in the society.

III.

It is imperative to earnestly do well the linkage of relevant works before and after the amendment of the Company Law and Securities Law. The amendment of these two Laws concerns the readjustment of relevant managerial systems and of duties among authorities, and the linkage work shall be well done so as to prevent the disjointing of relevant managerial works.

First, the work of company registration and record shall be timely readjusted. In accordance with the amended Company Law and Securities Law, the establishment of incorporated companies needs no longer the approvals from the authorities authorized by the State Council or the provincial people's governments, while in case that the public distribution of shares is concerned, the approval from the China Securities Regulatory Commission is required. And the State Administration for Industry and Commerce shall, targeting on the aforesaid changes, revise the provisions for company registration and record and strengthen the administration of registration and record.

Second, the administration on the distribution of securities shall be strict. In accordance with the provision in the amended Securities Law that public distribution of securities shall all and singular need the examination and approval from the securities regulatory authorities of the State Council or the authorities authorized by the State Council, the China Securities Regulatory Commission and the authorities authorized by the State Council shall, targeting on the present actual situations, accelerate the study and making of relevant provisions, specify the conditions and procedures for examination and approval, and establish relevant systems on the registration, custody and settlement of securities. And the rush for overissuing securities shall be prevented before the promulgation of relevant match-up provisions. The China Securities Regulatory Commission shall temporarily deny other applications for the public distribution of securities except the existing ones, and the authorities for industry and commerce at all levels shall also deny the related applications for registration and record. With regard to those who illegally purchase and sell the illegally-distributed securities or who provide services of transaction through agent, transfer, and custody etc. to the illegally-distributed securities, such authorities as the China Securities Regulatory Commission, the Ministry of Public Security, the State Administration for Industry and Commerce etc. shall, in cooperation with the local people's governments, investigate and prosecute them according to law.

Third, the administration on securities exchange shall be strengthened. In accordance with the amended Securities Law, the publicly issued securities according to law may be transferred at other stock exchanges approved by the State Council besides being listed for transactions at the Shanghai Stock Exchange and Shenzhen Stock Exchange. In light of the previous experiences and lessons, the advance of the building of multilevel capital markets shall be promoted under the unified leadership of the State Council in an organized and gradual way. Without the approval from the State Council, the local people's governments at all levels and relevant authorities of the State Councils shall not establish stock exchanges or provide the service of securities transfer utilizing the existing transaction platforms. The China Securities Regulatory Commission shall, in cooperation with relevant authorities of the State Council, accelerate the studies on the programs for building a multilevel capital market system, and submit them to State Council for implementation after approval.

IV.

The organizational leadership for the implementation work shall be strengthened, and relevant administrative laws and regulations shall be timely formulated or cleared. The local people's governments at all levels and relevant authorities of the State Council shall strengthen their organizational leadership for the implementation work, enforce strictly the provisions in the amended Company Law and Securities Law, do well works of their own and enhance the coordination and cooperation among them. The China Securities Regulatory Commission shall enhance its cooperation with relevant authorities of the State Council, carry out its law-enforcing powers and measures entrusted by the law, strengthen supervision and administration on the capital markets together with relevant authorities, and adopt effective measures to prevent and reduce market risks so as to construct a good environment for the development of capital markets. The State-owned Assets Supervision and Administration Commission of the State Council and other authorities in charge of the supervision and administration of the state-owned assets shall, in accordance with the provisions in the amended Company Law, further improve the management structures of the wholly state-owned companies and the state-owned holding companies and actively advance the shareholding reform of the state-owned enterprises.

Relevant authorities of the State Council shall, in accordance with the amended Company Law and Securities Law, accelerate the drafting of administrative laws and regulations concerning the supervision and administration of the listed companies, securities companies and the financial holding companies, and the risk treatment of the securities companies, and submit them to the State Council for examination and deliberation as soon as possible; and they shall advance relevant programs for the securities credit exchange system in a proper time, so as to create conditions for the capital's entering into the market as stipulated. The Legislative Affaires Office shall organize relevant authorities to conduct special screening of the existing administrative regulations and rules related to the Company Law and Securities Law, and the administrative regulations and rules, if conflicting with the amended Company Law and Securities Law, shall be revised or cancelled. The State Administration for Industry and Commerce and other relevant authorities shall accelerate the revision on the Administrative Regulation of the People's Republic of China on the Registration of Companies and other administrative regulations and rules, and conduct a comprehensive clearance of the administrative regulations and rules related to the registration of companies. The Ministry of Finance shall further revise and improve the financial system of the enterprises and the national accounting system. The National Development and Reform Commission shall, in cooperation with the People's Bank of China, the China Securities Regulatory Commission and other authorities, study and improve the legal system concerning the enterprise bond. The Legislative Affaires Office, the Ministry of Public Security, the State Administration for Industry and Commerce, the China Securities Regulatory Commission and other authorities shall actively communicate with relevant authorities, and cooperate with them in the relevant revisions or legislations and judicial interpretations on the provisions in the Criminal Code related to companies and securities crimes, so as to readjust the provisions related to the prosecution against the economic crimes as soon as possible. People's governments in all provinces, autonomous regions, and municipalities under direct control of the Central Government shall also improve relevant governmental regulations in accordance with the relevant provisions in the amended Company Law and Securities Law.

All the authorities in all places, after receiving this Circular and in accordance with their actual circumstances, shall formulate concrete measures and implement it earnestly. And the important issues and problems occurring in the process of implementation shall be timely reported to the State Council.

The General Office of the State Council

December 23, 2005