CIRCULAR OF THE STATE ADMINISTRATION OF FOREIGN EXCHANGE CONCERNING RELEVANT ISSUES ON IMPROVING FOREIGN EXCHANGE ADMINISTRATION FOR MERGER AND ACQUISITION WITH FOREIGN INVESTMENTS

Circular of the State Administration of Foreign Exchange Concerning Relevant Issues on Improving Foreign Exchange Administration for Merger and Acquisition with Foreign Investments

The branches and the foreign exchange administration departments of the State Administration of Foreign Exchange in all provinces, autonomous regions and municipalities directly under the Central Government, and the branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

For the purpose of maintaining the balance of payments, guaranteeing the trans-territorial capitals flow orderly and legally, the relevant issues on improving foreign exchange administration in respect of merger and acquisition with foreign investments are hereby notified as follows:

A domestic resident who contributes investments abroad to directly or indirectly establish or control an overseas enterprise shall go through the procedures for approval and registration according to the "Foreign Exchange Administration Measures for Overseas Investments".

According to the "Interim Provisions for Foreign Investors to Merge or Acquire Domestic Enterprises", in case a domestic resident intends to transfer his domestic company's stock right certificate for an overseas company's stock right certificate or other property rights, he shall be approved by the foreign exchange administration department. Domestic residents shall not, without approval, exchange by using his own domestic assets or stock rights as consideration for transaction for any overseas enterprise's stock rights or other property rights.

Any branch or foreign exchange administration department of the SAFE, shall, when handling foreign exchange registration for a foreign-funded enterprise established through merger or acquisition with foreign investments, focus on verifying whether this overseas enterprise was established or controlled by domestic residents, whether it has the same management staff with those of the merged or acquired enterprise(see the annex for details). In the case of the foreign-funded enterprises established by domestic residents via overseas enterprises by means of merging or acquiring domestic enterprises, all branches and foreign exchange administration departments of the SAFE shall report their applications for foreign exchange registration to the SAFE for approval.

In the case of the foreign-funded enterprises which were established by domestic residents via overseas enterprises by means of merging or acquiring domestic enterprises and have made foreign exchange registration, all branches and foreign exchange administration departments of the SAFE shall enumerate a detailed name list, and shall focus their supervision and control on the information of such enterprises in respect of confirmation request for capital verification, foreign exchange registration of foreign investments in the form of foreign exchange upon transfer of stock rights, registration of stockholders' loans, remittance of profits abroad, re-investment with profits, stock right transfer, etc., and timely investigate any problem found.

This Circular shall come into force since the date when it is promulgated. htm/e03846.htmAnnex

Foreign Exchange Registration Procedures and Rules for Establishment of Foreign-funded Enterprises Through Merger or Acquisition with Foreign Investments

Regulation Basis	Documents to be Examined	Factors of Verification Principles	Scope of Authorization	Notes
"Interim Measures for the Foreign Exchange Registration of Foreign-funded Enterprises" "Circular Concerning the Relevant Issues on Strengthening the Approval, Registration and Taxation Administration of Foreign-funded Enterprises" (MOFTEC FA [2002] No. 575) "Interim Provisions for Foreign Investors to Merge or Acquire Domestic Enterprises"	1. A written application; 2. A counterpart of the business license of the legal person of the enterprise; 3. The official reply document and approval certificate of the administrative department of commerce on approving the establishment of the foreign-funded enterprise through merger or acquisition with foreign investments; 4. The contracts and the rules on merger or acquisition with foreign investments, which have been approved to become effective; 5. The organizational code certificate; (Note: All the above documents shall be verified in original copy, or in photocopy affixed with an original stamp, while the photocopies shall be kept in the archives.) 6. Filling out the "Registration Form on Basic Information of the Foreign-funded Enterprise".	1. The foreign exchange registration certificate shall clearly indicate the enterprise's business scope, as well as the investment method and proportion of each investor. 2. The relevant documents shall be genuine and consistent with each other. 3. The enterprises shall, after obtaining the business license, timely make foreign exchange registration. 4. The written application shall contain the following declaratory words: "There is no direct or indirect associated stock right or asset relationship between the new foreign stockholder of this Company and the original Chinese stockholder who transfers his stock rights (or assets), nor is there any other internal transaction act against foreign exchange administration provisions. All payments and settlements under this transaction are in accordance with the “Interim Measures for Foreign Investors to Merge or Acquire Domestic Enterprises”. In case there is any false statement, this Company will bear the legal liabilities accordingly." Or the said application shall truthfully state direct or indirect associated stock right or asset relationship between the new foreign stockholder of the Company and the original Chinese stockholder who transfers his stock rights (or assets).	1. The branches and their respective sub-branches shall handle the procedures according to the principle of locality. 2. If a domestic resident establishes a foreign-funded enterprise by means of merging or acquiring a domestic enterprise via an overseas enterprise, its application for foreign exchange registration shall be submitted level by level to the SAFE for approval.	1. "Merger and acquisition" mentioned in these Procedures and Rules shall have the same meaning as those in the "Interim Provisions for Foreign Investors to Merge or Acquire Domestic Enterprises". 2. When handling a foreign-funded enterprise's foreign exchange registration, the foreign investment contract shall be examined to determine whether this enterprise was established by foreign investors through merger or acquisition of stock rights or assets, and whether these Procedures and Rules shall be applied. 3. The contract on merger or acquisition shall be examined to know whether the overseas enterprise carrying out the merger or acquisition was established or controlled by a domestic resident, and whether it has the same management staff with those of the merged or acquired enterprise.

Laws of the People's Republic of China

CIRCULAR OF THE STATE ADMINISTRATION OF FOREIGN EXCHANGE CONCERNING RELEVANT ISSUES ON IMPROVING FOREIGN EXCHANGE ADMINISTRATION FOR MERGER AND ACQUISITION WITH FOREIGN INVESTMENTS