China’s Industrial Profits Fall in First 8 Months

China’s major industrial enterprises reported a combined profit of 1.67 trillion yuan ($245.2 billion) in the first eight months this year, down 10.6 percent from a year earlier.

The fall compares to a 19.4-percent increase during the January-August period last year.

The NBS statistics cover the profits of major industrial enterprises, defined as those with more than 5 million yuan in revenue from their main business annually.

The bureau said profits in state-owned industrial companies declined 25.2 percent to 504.5 billion yuan. However, profits in privately-owned industrial firms rose 6.6 percent year-on-year to 439.9 billion yuan.

Profits in the power generation sector increased by 194 percent during the January-August period. Oil refineries and coking plants moved to a profit of 71.2 billion yuan from a loss of 94.2 billion yuan in the same period last year.

Profits in other sectors, including oil and gas exploration, steel and non-ferrous metal smelting, dropped more than 50 percent.

Source:      http://www.chinadaily.com.cn

Tags: China, industrial profit
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What Does CEPA Offer?

CEPA
■ Zero tariffs on 90% of Hong Kong exports to China
■ Faster/easier China market access for 18 service sectors
■ Lower entry thresholds for smaller players (capital/trading history
requirements)
■ 100% ownership of many China ventures
■ Manufacturers in China able to use Hong Kong services
■ Makes Hong Kong the easiest route into/out of China
WHO BENEFITS FROM CEPA?
Hong Kong-based service providers (in 18 sectors):
■ Company must be incorporated in Hong Kong
■ Doing business in Hong Kong for past 3-5 years
■ Liable for Hong Kong profits tax
■ Employing 50% of staff in Hong Kong
■ Any nationality
Manufacturers/distributors of goods (for 273 categories):
■ Goods must qualify as ‘made in Hong Kong’
■ Not necessary for company to be based in Hong Kong
■ To qualify, goods must be‘substantially transformed’ – 30% of
value must be added in Hong Kong (includes R&D, design costs)

CEPA – YOUR SPRINGBOARD TO CHINA

WHAT IS CEPA?
■ A free trade agreement between Hong Kong and mainland China
■ Effective from 1 January 2004
■ Preferential access to China’s market from Hong Kong
■ Significant China market liberalisation
■ Goes further than China’s WTO commitments CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT HOW CAN OVERSEAS COMPANIES BENEFIT?
Service companies
■ Partner with, invest in, or buy into a Cepa-qualified firm in Hong Kong
Manufacturers or traders of goods
■ Partner with, or outsource to, a Hong Kong manufacturer
(no need for your company to have a base in Hong Kong)
HOW CAN COMPANIES APPLY?
■ Hong Kong-based service companies must apply for a Cepa certificate
■ Manufacturers must apply for a Cepa certificate for their products
Easy application procedure through Hong Kong’s Trade and Industry Department
MORE INFORMATION?
www.tid.gov.hk/cepa/eng – detailed information from Hong Kong’s Trade
and Industry Department
www.tdctrade.com/cepa – Hong Kong Trade Development Council’s Cepa
section
www.hktrader.net – e-newsletter with Cepa section for overseas companies

1HOW CEPA CAN HELP YOU
1 What is Cepa?
Cepa stands for Closer Economic Partnership Arrangement. It is a free
trade deal, operating from 1 January 2004, between Hong Kong and the
Chinese mainland. It is the first bilateral free trade deal signed by China.
2 What are the main provisions of Cepa?
Cepa is broadly divided into three sections:
Trade in goods
Any company (Hong Kong-based or from outside Hong Kong) can benefit
from zero tariffs on 273 categories of products exported from Hong Kong
into the Chinese mainland, as long as the products are classified as
‘Made in Hong Kong’.
Your company does not have to have an office in Hong Kong, but your
products must satisfy ‘Rules of Origin’ to classify as ‘Made in Hong Kong’.
Trade in services
Under Cepa provisions, the Chinese mainland has opened up its market to
Hong Kong-based service providers in 18 sectors.
Advertising, accountancy, audiovisual, banking, construction and real
estate, convention and exhibition services, distribution services, freight
forwarding, insurance, legal, logistics, management consultancy,
medical and dental, securities, storage and warehouse services,
telecommunications, tourism and transport.
Trade and investment facilitation
The main provisions relate to liberalising customs clearance, business
regulations and the standardisation of e-commerce.
23 How does Cepa add to Hong Kong’s position as Asia’s business centre?
Cepa offers preferential access to China’s markets, over and above
commitments made by China under WTO. Cepa adds to the long list of
reasons why international businesses choose Hong Kong as a base for
their China and Asia operations.
Three broad groups stand to benefit:
■ Companies already based in Hong Kong (of any nationality)
■ Overseas companies interested in developing their China business strategy
through Hong Kong
■ Chinese mainland enterprises that wish to use Hong Kong services to
streamline and expand their businesses overseas
Section 1

TRADE IN GOODS – HOW CEPA CAN HELP YOUR BUSINESS
4 What products are eligible for zero tariffs?
273 product categories have been selected to be tariff free from 1 January
2004. This covers 90 percent of Hong Kong products. The majority of
remaining products will be tariff free by 2006, at the latest.
For a full list, see www.tid.gov.hk/english/cepa
5 Do you have to have an office in Hong Kong for your products to qualify as
‘Made in Hong Kong’?
No. Cepa provisions that a company be based in Hong Kong for three to
five years; be liable to pay tax; and employ 50 percent of its workforce
locally, only applies to service companies.
For goods to qualify as ‘Made in Hong Kong’ they simply have to qualify
under the Cepa ‘Rules of Origin’.
36 Do your products have to be manufactured in Hong Kong to enjoy zero tariffs?

What are the Rules of Origin (ROO)?
Products must be classified as ‘Made in Hong Kong’ under Cepa ‘Rules of
Origin’ (ROOs). For goods to qualify as made in Hong Kong, they must
have been substantially transformed in Hong Kong.
Currently 273 product codes are covered by Cepa.
■ 187 of these will adopt Hong Kong’s existing origin rules (these include
textiles and clothing, jewellery, cosmetics, pharmaceutical products, and
plastic and paper articles).
■ 46 products (such as some chemical and metal products, some electronic
products and electronic components) will adopt a ‘Change in Tariff
Heading’ (CTH) approach. CTH is widely used by most WTO members.
■ The remaining 40 products (electrical and optical components, watches
and clocks) will adopt a 30% value added requirement. R&D and design
will be counted under this value adding requirement.
7 Will you need a Certificate of Origin to benefit from zero tariffs?
Yes. Hong Kong’s Trade and Industry Department has set up a new unit to
administer certification. Companies do not have to wait until 1 January
2004 to seek certification. Please click on www.tid.gov.hk for details.
8 Do the zero tariffs apply to taxes levied by the Chinese government?
Cepa only covers import tariffs. VAT and other domestic taxes in China
are not exempt.
49 Will Cepa help you to source products efficiently from the Chinese mainland?
Yes. Cepa opens up the Chinese mainland to more Hong Kong companies
working in the trade support industries.
In particular, Cepa looks set to further integerate the economies of
Hong Kong and the Pearl River Delta region of southern China.
The economy of the Pearl River Delta is dominated by manufacturing,
while Hong Kong excels in trade services, such as sourcing, financing,
logistics and transportation. The combination of these two regions (often
called the Greater Pearl River Delta) offers a compelling and competitive
way to do business.
10 If you want to sell products into China, how can Hong Kong and Cepa help?
Under Cepa, Hong Kong-based companies can set up wholly-owned
distribution ventures to manage the full process of getting your products to
retailers and consumers.
Working with a Hong Kong partner, you can find suitable markets, better
understand local consumers and distribute to all regions on the mainland.
Please note that your products will still be subject to mainland Chinese
import tariffs, unless they have Cepa certification.
511 What are the advantages of manufacturing in Hong Kong – and how can you satisfy the ‘Rules of Origin’?
Cepa establishes Hong Kong as a competitive manufacturing location for
high-value goods, especially those with strong design content, or valuable
trademarks. Hong Kong’s strict intellectual property legislation and strong
service sectors support the manufacture and distribution of high value
products.
Using Hong Kong’s free port system, raw materials or semi-made products
can be imported into Hong Kong tariff free. ‘Boutique’ factories in Hong
Kong can manage the specialised stages of the design, manufacturing
and IP protection of the product. Your products can then be exported tariff
free to China (i) for further mass production (ii) for China-wide distribution,
or (iii) exported to the rest of the world.
You can either invest in your own production lines, or license/outsource to
Hong Kong factories to satisfy the Rules of Origin.
Section 2

TRADE IN SERVICES ñ HOW CEPA CAN HELP YOUR BUSINESS
12 If you have a services company, can you take advantage of Cepa provisions to enter the China market?
Cepa provisions cover 18 service areas. You must also qualify as a
‘Hong Kong company’. To satisfy these criteria, your company must:
■ Be incorporated in Hong Kong for three to five years (depending on
the sector)
■ Be liable to pay profits tax
■ Employ at least 50% of staff in Hong Kong
Any company, regardless of nationality, which satisfies this criteria, can
benefit from Cepa provisions.
613 How will Cepa make it easier for you to access the China market?
The exact provisions vary according to the sector. Please see page 9
for an overview, or click on www.tid.gov.hk/english/cepa for a sector-by-sector breakdown. However, broadly speaking, Cepa helps in four key areas:
■ Earlier market entry – Under WTO commitments China is gradually making
it easier for overseas companies to set up. Cepa offers a one to five year
head start to Hong Kong-based companies.
■ Setting up wholly-owned companies – Currently overseas companies have
to partner with Chinese companies. In many cases Cepa allows for the
creation of wholly-owned companies.
■ Lower capital thresholds – Capital requirements to set up in China have
been reduced substantially opening up the field to smaller players.
■ Recognition of qualifications – Many Hong Kong professional qualifications
will be recognized in China, and access to sit China professional exams will
be broadened.
14 If you would like to take advantage of Cepa provisions, but you do not have an office in Hong Kong, what should you do?
If you do not qualify as a ‘Hong Kong company’ under the criteria set out
in Q12, you can partner with, invest in, or buy into, a Hong Kong-based
company that already qualifies. You may then enjoy the advantages offered
by Cepa.
7 General questions
15 How does Cepa differ from China’s WTO commitments?
Cepa provisions offer two key benefits over and above WTO commitments:
■ Earlier implementation – in most cases, Cepa advantages will be available
to Hong Kong-made products and Hong Kong-based service providers
one to five years ahead of WTO benefits.
■ Better benefits – For ‘Made in Hong Kong’ products, Cepa provisions offer
zero tariffs on 90 percent of goods from 1 January 2004, and will offer zero
tariff on all goods by 2006, at the latest. Even under full WTO commitments, tariffs will remain between five and 30 percent.
Cepa-eligible service companies (of any nationality), benefit from lower
capital and asset requirements, no global quota restrictions and being able
to set up wholly-owned ventures. WTO commitments have no timetable for
wholly-owned ventures in areas such as logistics and exhibition services.
16 What is the difference between a Free Trade Agreement and Cepa?
Normally FTAs are signed between two countries. Because of the ‘one
country, two systems’ between the Chinese mainland and Hong Kong,
a different name has been used. In other ways, Cepa is comparable to a FTA.
8
“Made in Hong Kong” products covered by Cepa
• Electrical and electronic products • Metal products • Chemical products • Pharmaceutical products • Plastic articles • Paper articles • Textiles and clothing • Cosmetics • Clocks andwatches • Jewellery
For more detail, check www.tid.gov.hk/english/cepaService sectors covered by Cepa NB. Any company that satisfies Cepa-eligibility can benefit, regardless of nationality.
Accounting: One year permits for Hong Kong companies to conduct auditing services on the mainland. Hong Kong-qualified accountants who have practised on the mainland will be treated as Mainland accountants.
Advertising: Firms from Hong Kong can establish wholly-owned advertising companies on the mainland.
Audiovisual: Hong Kong-produced Chinese language movies will be exempt from the 20 overseas film quota and can be distributed on the mainland. Co-produced movies will be treated as mainland films.
Banking: Asset requirement for banks to establish mainland branches is reduced from US$ 20 bn to US$ 6 bn.
Conventions: Hong Kong firms can set up wholly owned operations.
Construction and real estate: Hong Kong firms can set up wholly-owned operations.
Distribution (exc tobacco): Hong Kong firms providing distribution services, retailing or franchising can set up wholly-owned operations. Hong Kong car dealers can open up to 30 wholly-owned retail outlets.
Freight forwarding: Hong Kong firms can operate on a wholly-owned basis.
Insurance: Max limit of capital by a Hong Kong insurance firm in a mainland firm is 24.9 per cent. Hong Kong insurance agents can practice with mainland professional qualifications.
Legal: Hong Kong lawyers can work for mainland firms. Minimum requirements are waived for those operating in Shenzhen and Guangzhou and shortened to two months for other areas.
Logistics: Hong Kong companies can set up wholly-owned operations on the mainland.
Management/consultancy: Most companies can set up wholly-owned enterprises.
Medical and dental: Hong Kong doctors can work on the mainland for up to three years.
Hong Kong medical workers can sit exams to work on the mainland.
Securities: Hong Kong Exchanges and Clearing can set up a representative office in Beijing.
Storage/warehousing: Hong Kong companies can operate wholly-owned operations.
Telecommunications: Hong Kong companies can set up JV enterprises on the mainland.
No geographic restriction for JV enterprises formed by Hong Kong service suppliers and the mainland to provide value-added services.
Tourism: Hong Kong companies can run hotels/restaurants on a wholly-owned basis.
Transport: Hong Kong companies can operate on a wholly-owned basis.

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Sole Proprietorship Enterprise Law of the People’s Republic of China

(Adopted by the 11th Session of the Standing Committee of the 9th National People’s Congress)

Chapter One: General Provisions

Article 1 With a view to regulate the activities of sole proprietorship enterprises, to protect the lawful rights and interests of sole proprietors and creditors of sole proprietorship enterprises, to safeguard the social and economic order, and to promote the development of socialist market economy, this Law is formulated in accordance with the Constitution.

Article 2 For purposes of this Law, a sole proprietorship enterprise means a business entity established within China with its capital contributed by one individual and its assets owned personally by the sole proprietor, who assumes unlimited liability to the extent of his personal assets.

Article 3 A sole proprietorship enterprise’s main place of business shall be its domicile.

Article 4 In conducting business activities, a sole proprietorship enterprise shall abide by law and administrative regulations, as well as the principle of good faith and may not harm the public interests.

A sole proprietorship enterprise shall fulfill its obligation to pay tax in accordance with the law.

Article 5 The state shall protect the property and other lawful rights and interests of a sole proprietorship enterprise in accordance with the law.

Article 6 A sole proprietorship enterprise shall hire workers in accordance with the law. The lawful rights and interests of its workers are protected by law. The workers of the sole proprietorship enterprise shall establish a labor union in accordance with the law, and the labor union shall conduct its activities in accordance with the law.

Article 7 A member of the Chinese Communist Party in a sole proprietorship enterprise shall conduct his activities in accordance with the Charter of the Chinese Communist Party.

Chapter Two: Establishment of Sole Proprietorship Enterprise

Article 8 For the establishment of a sole proprietorship enterprise, the following conditions shall be met:

(i) The sole proprietor is a natural person;

(ii) There is a lawful enterprise name;

(iii) There is capital contribution declared by the sole proprietor;

(iv) There is a permanent place and the necessary conditions for production and operation;

(v) There are necessary personnel.

Article 9 In establishing a sole proprietorship enterprise, the sole proprietor or the agent appointed thereby shall submit such documents as an application for the establishment of a sole proprietorship enterprise, proof of identity of the sole proprietor, proof of use of the place for production and operation, etc. to the registration authority of the place where the sole proprietorship enterprise will be located. Where an agent is appointed to apply for the establishment of the sole proprietorship enterprise, the power of attorney issued by the sole proprietor and the legal identity of the agent shall be presented.

A sole proprietorship enterprise may not engage in any business prohibited by law or administrative regulations; where the sole proprietorship enterprise intends to engage in any business which requires approval by the relevant authority, the approval document issued by the relevant authority shall be presented at the time of applying for establishment registration.

Article 10 The application form for the establishment of a sole proprietorship enterprise shall set forth the following:

(i) name and domicile of the enterprise;

(ii) name and residence of the sole proprietor;

(iii) the amount and form of capital contribution;

(iv) the scope of business.

Article 11 The name of a sole proprietorship enterprise shall be consistent with its form of liability and its type of business.

Article 12 Within fifteen days of its receipt of the application documents, the registration authority shall register the sole proprietorship enterprise and issue a business license thereto if the documents comply with the requirements set forth herein, or deny registration and issue a written response stating the reason for denial.

Article 13 The date of issuance of the business license for a sole proprietorship enterprise shall be the date of its establishment.

Prior to issuance of a business license for sole proprietorship enterprise, the sole proprietor may not engage in any business in the name of the sole proprietorship enterprise.

Article 14 In establishing a branch of a sole proprietorship enterprise, the sole proprietor or an agent appointed thereby shall submit an application for registration to the registration authority of the place where the branch will be located, and the branch shall be issued a business license.

Upon approval and registration of the branch, its registration certificate shall be filed with the registration authority having jurisdiction over the sole proprietorship enterprise to which such branch belongs.

The civil liabilities of the branch shall be borne by the sole proprietorship enterprise establishing such branch.

Article 15 Where during its existence, a sole proprietorship enterprise undergoes a change which affects a registered item, an application for registration amendment shall be submitted to the registration authority in accordance with the law within fifteen days of the decision to make such change.

Chapter Three: Sole Proprietor and Management of the Sole Proprietor Enterprise’s Affairs

Article 16 A person who is prohibited from engaging in any for-profit activity may not apply for the establishment of a sole proprietorship enterprise as a sole proprietor.

Article 17 A sole proprietor has lawful title to the assets of the sole proprietorship enterprise, and any related right may be assigned or inherited in accordance with the law.

Article 18 Where at the time of application for establishment, the sole proprietor expressly declares any property jointly owned by his family as capital contribution, he shall assume unlimited liability to the extent of such joint property in accordance with the law.

Article 19 A sole proprietor may manage the affairs of the sole proprietorship enterprise by himself, and may also appoint or hire another person with the capacity for civil act to manage the sole proprietorship enterprise.

Where a sole proprietor appoints or hires another person to manage the affairs of the sole proprietorship enterprise, he shall conclude with the agent or employee a written contract prescribing the entrusted affairs and the scope of authority granted.

The agent or employee shall perform the obligations of good faith and due care, and manage the affairs of the sole proprietorship enterprise in accordance with the contract with the sole proprietor.

Any restriction by the sole proprietor on the authority of the agent or employee shall not constitutes a defense against a third person in good faith.

Article 20 The person appointed or hired by the sole proprietor to manage the affairs of the sole proprietorship enterprise may not engage in any of the following conducts:

(i) demanding or accepting bribes by usurping his official position;

(ii) converting property of the sole proprietorship enterprise by usurping his official position or working relationship;

(iii) misappropriating funds of the sole proprietorship enterprise by using them for his own purpose or lending them to a third person.

(iv) depositing funds of the sole proprietorship enterprise in his own name or in the name of any third person without authorization;

(v) pledging assets of the sole proprietorship enterprise as security without authorization;

(vi) engaging in any business in competition with the sole proprietorship enterprise without consent by the sole proprietor;

(vii) entering into any contract or conducting any transaction with the sole proprietorship enterprise without consent by the sole proprietor;

(viii) assigning any trademark or other intellectual property of the sole proprietorship enterprise to a third person for use without consent by the sole proprietor;

(ix) disclosing trade secrets of the sole proprietorship enterprise;

(x) any other act prohibited by law or administrative regulations.

Article 21 A sole proprietorship enterprise shall set up accounting books and conduct accounting in accordance with the law.

Article 22 Where a sole proprietorship enterprise employs workers, it shall enter into labor contracts with the workers, and ensure workplace safety and make full and timely payment of wages.

Article 23 A sole proprietorship enterprise shall participate in the social insurance scheme in accordance with the relevant stipulations of the state, and shall pay social insurance premiums for its workers.

Article 24 A sole proprietorship enterprise may apply for loan and acquire land-use-rights in accordance with the law, and shall enjoy other rights prescribed by law or administrative regulations.

Article 25 No entity or individual may force a sole proprietorship enterprise to contribute funds, goods or labor in any manner in violation of law or administrative regulations; a sole proprietorship enterprise is entitled to reject any attempt forcing it to contribute funds, goods or labor in violation of law.

Chapter Four: Dissolution and Liquidation of Sole Proprietorship Enterprise

Article 26 A sole proprietorship enterprise shall be dissolved in any of the following circumstances:

(i) The sole proprietor decides to dissolve the sole proprietorship enterprise;

(ii) The sole proprietor is deceased or is declared deceased, and there is no heir or the heir has renounced his inheritance;

(iii) Its business license is lawfully revoked;

(iv) Any other situation prescribed by law or administrative regulations has occurred.

Article 27 Where a sole proprietorship enterprise is to be dissolved, the sole proprietor shall conduct liquidation himself, or the creditors thereof may apply to the People’s Court to designate a liquidator to conduct liquidation.

Where the sole proprietor conducts liquidation himself, he shall notify the creditors fifteen days prior to liquidation, and where he is unable to give notice, he shall make a public announcement. A creditor who has received such notice shall file a claim with the sole proprietor within thirty days of notification, and a creditor who has not received such notice shall file a claim with the sole proprietor within sixty days of the public announcement.

Article 28 Upon dissolution of a sole proprietorship enterprise, the former sole proprietor shall be liable to repay the debt incurred by the sole proprietorship enterprise during its existence, provided that any claim not made by the relevant creditor within five years shall be extinguished.

Article 29 Upon dissolution of a sole proprietorship enterprise, its assets shall be paid out in the following order of priority:

(i) wages and social insurance premiums payable;

(ii) taxes payable;

(iii) other debts.

Article 30 During liquidation, a sole proprietorship enterprise may not engage in any business activity unrelated to the liquidation. The sole proprietor may not transfer or conceal the property of the sole proprietorship enterprise prior to full payment of its debt.

Article 31 Where the assets of a sole proprietorship enterprise are not sufficient to repay its debts in full, the sole proprietor shall contribute his other personal assets to cover the difference.

Article 32 Upon completion of the liquidation of a sole proprietorship enterprise, the sole proprietor or the liquidator designated by the People’s Court shall prepare a liquidation report, and shall conduct de-registration with the registration authority within fifteen days.

Chapter Five: Legal Liabilities

Article 33 Where a sole proprietor, in violation of the provisions hereof, obtains registration for the sole proprietorship enterprise by submitting false documents or by other fraudulent means, he shall be ordered to rectify the situation, and shall be fined not more than five thousand Yuan; where the circumstance is serious, its business license shall be concurrently revoked.

Article 34 Where the name of a sole proprietorship enterprise, in contravention to the provisions hereof, is not consistent with the name registered with the registration authority, the sole proprietorship enterprise shall be ordered to rectify the situation within a prescribed time limit, and shall be fined not more than two thousand Yuan.

Article 35 Where a sole proprietorship enterprise alters, rents or assigns its business license to any other person, it shall be ordered to rectify the situation, and any resulting illegal income shall be confiscated, and the sole proprietorship enterprise shall be fined not more than three thousand Yuan; where the circumstance is serious, its business license shall be revoked.

Where a person falsifies the business license of a sole proprietorship enterprise, he shall be ordered to cease his business, and any illegal income shall be confiscated, and he shall be fined not more than five thousand Yuan. Where such act constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 36 If a sole proprietorship enterprise fails to commence business within six months from the time of its establishment, or it ceases to carry out its business for more than six consecutive months, its business license shall be revoked.

Article 37 Where a person, in violation of the provisions hereof, engages in any business activity in the name of a sole proprietorship enterprise while no business license has been issued, he shall be ordered to cease such business activity, and he shall be fined not more than three thousand Yuan.

Where a registered item of a sole proprietorship enterprise has changed, if amendment registration is not carried out in accordance herewith, the sole proprietorship enterprise shall be ordered to carry out such registration within a prescribed time limit; where amendment registration is not carried out within the prescribed time limit, the sole proprietorship enterprise shall be fined not more than two thousand Yuan.

Article 38 If while conducting the affairs of the sole proprietorship enterprise, the person appointed or hired by a sole proprietor breaches the contract between them, thereby causing harm to the sole proprietor, such person shall be liable for civil damages.

Article 39 Where a sole proprietorship enterprise, in violation hereof, violates the lawful rights and interests of its workers, fails to ensure the safety of its workers or fails to pay their social insurance premiums, it shall be sanctioned in accordance with the relevant laws or administrative regulations, and liability shall be imposed on the relevant person.

Article 40 Where the person appointed or hired by a sole proprietor infringes on the property interests of the sole proprietorship enterprise, he shall be ordered to make restitution, and where the sole proprietorship enterprise sustains any loss as a result, he shall be liable for damages in accordance with the law; where he has made any illegal gain, such illegal gain shall be confiscated; where a crime is committed, criminal liability shall be imposed.

Article 41 Where a sole proprietorship enterprise is forced to contribute resources in the form of labor, goods, or funds in violation of law or administrative regulations, the responsible party shall be sanctioned in accordance with the relevant law or administrative regulation, and liability shall be imposed on the relevant person.

Article 42 Where before or during the liquidation of a sole proprietorship enterprise, the sole proprietorship enterprise or the sole proprietor conceals or transfers its/his assets in order to evade debts, such assets shall be reclaimed in accordance with the law and sanction shall be imposed in accordance with the law; where such act constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 43 Where the sole proprietor violates the provisions hereof, thereby incurring civil liability for damages as well as administrative or criminal fine, if his assets are not sufficient to pay the above amounts in full, or his assets are to be confiscated, satisfaction of the relevant civil liability shall have priority.

Article 44 Where the registration authority grants registration to an application for the registration of sole proprietorship enterprise which fails to meet the conditions prescribed herein, or fails to grant registration to an application for registration of sole proprietorship enterprise which meets the conditions prescribed herein, the person direct responsible shall be assessed administrative penalties in accordance with the law. Where such act constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 45 Where the department in charge of the registration authority compels it to grant registration to an application which fails to meet the conditions prescribed herein, or engages in cover up for an illegal registration, the person with directly responsible shall be assessed administrative penalties in accordance with the law. Where such act constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 46 Where the registration authority fails to grant registration to an application which meets the conditions prescribed herein, or fails to issue any response after the legally prescribed time limit has expired, the party may apply for administrative review or bring an administrative suit.

Chapter Six: Supplementary Provisions

Article 47 This Law shall not apply to a wholly foreign-owned enterprise.

Article 47 This Law shall take effect as from January 1, 2000.

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PARTNERSHIP LAW OF THE PEOPLE’S REPUBLIC OF CHINA

(Adopted at the 24th Session of the Standing Committee of the 8th National People’s Congress on February 23, 1997)

TABLE OF CONTENTS

Chapter One: General Provisions

Chapter Two: Establishment Of The Partnership

Chapter Three: Partnership Property

Chapter Four: Conduct Of Partnership Affairs

Chapter Five: Relationship Between The Partnership And A Third Person

Chapter Six: Admission To And Withdrawal From The Partnership

Chapter Seven: Dissolution And Liquidation Of The Partnership

Chapter Eight: Legal Liabilities

Chapter Nine: Supplementary Provisions

---

Chapter One: General Provisions

Article 1 This Law is formulated in order to standardize the conduct of partnerships, to protect the lawful rights and interests of partnerships and the partners therein, to safeguard social and economic order, and to promote the development of socialist market economy.

Article 2 The partnership referred to herein shall mean a for-profit association established within China in accordance herewith pursuant to the partnership agreement concluded by all the partners, whereby the partners jointly contribute capital, jointly operate the business, jointly share in the incomes and the risks, and are jointly and severally liable for the debts of the partnership.

Article 3 The partnership agreement shall be executed in writing in accordance with the law by all the partners upon their agreement after consultation.

Article 4 Conclusion of the partnership agreement and establishment of the partnership shall be under the principles of self-willingness, equality, fairness, and good faith.

Article 5 The designation of the partnership may not contain the words “Limited” or “Limited Liability.”

Article 6 In carrying on its business, the partnership shall observe the law, administrative regulations, and observe the ethics in its industry.

Article 7 The property and lawful rights and interests of the partnership and the partners therein are protected by law.

Chapter Two: Establishment Of The Partnership

Article 8 For the establishment of the partnership, the following conditions shall be met:

(i) There are two or more partners, all of whom are capable of assuming unlimited liability in accordance with the law;

(ii) There is a written partnership agreement;

(iii) There is actual capital contributed by the respective partners;

(iv) There is a designation for the partnership;

(v) There is a place of business and the necessary conditions for the operation of the partnership.

Article 9 Partners must be persons with full capacity for civil acts.

Article 10 No person who is prohibited by law or administrative regulations to engage in for-profit activities may be a partner in the partnership.

Article 11 A partner may make capital contribution in cash, tangible goods, land use rights, intellectual property, or other proprietary rights; the capital contribution referred to above shall be the lawful property and proprietary rights of the partners.

Where the value of an item of capital contribution needs to be determined, it may be determined pursuant to agreement by the partners after consultation among them, or an appraisal may be conducted thereon by an legally designated appraisal agency appointed by all the partners.

Where there is an agreement after consultation among the partners, a partner may make capital contribution in the form of service, and the appraisal method shall be determined by all the partners after consultation among them.

Article 12 Partners shall fulfill their obligations in respect of capital contribution in accordance with the method for, amount of, and time limit for, making capital contribution as prescribed in the partnership agreement.

The capital actually contributed by a partner in accordance with the partnership agreement shall be the partner’s capital contribution.

Article 13 The partnership agreement shall set forth the following:

(i) designation of the partnership and the address of its principal place of operation;

(ii) the purpose and business scope of the partnership;

(iii) the names and domiciles of the partners;

(iv) the method for, amount of, and time limit for, making capital contribution by each partner;

(v) the method for profit distribution and loss allocation;

(vi) the conduct of partnership affairs;

(vii) participation and withdrawal from the partnership;

(viii) dissolution and liquidation of the partnership;

(ix) liability for breach of contract.

The partnership agreement may prescribe a term for the partnership and the method for the resolution of dispute among the partners.

Article 14 The partnership agreement shall become effective upon the signature or impressing of chops thereon by all the partners. The partners shall have the rights and bear the liabilities as prescribed in the partnership agreement.

The partnership agreement may be amended or supplemented after agreement is reached by all the partners after consultation among them.

Article 15 For the application for registration for the establishment of the partnership, the registration application, partnership agreement, the identification documents of the partners, etc., shall be submitted to the enterprise registration authority.

Where approval by the relevant authorities is required by law or administrative regulations, the approval document shall also be submitted when applying for establishment registration.

Article 16 The enterprise registration authority shall make its decision to grant registration or not to grant registration within 30 days of the receipt of the documents for establishment registration. For an application meeting the conditions prescribed herein, registration shall be granted, and a business license shall be issued; for an application failing to meet the conditions prescribed herein, registration shall not be granted, and a written response explaining the reason(s) for denial shall be issued.

Article 17 The date of issue of the business license for the partnership shall be the date of establishment thereof.

Prior to the issue of a business license for the partnership, no partner may conduct business in the name of the partnership.

Article 18 Where the partnership applies to establish a branch, the partnership shall apply to the enterprise registration authority of the place where the branch will be located for registration, and a business license shall be issued.

Chapter Three: Partnership Property

Article 19 In the duration of the partnership, the capital contribution made by the partners and the income received in the name of the partnership shall all be property of the partnership.

Partnership property shall be jointly managed and used by all the partners in accordance herewith.

Article 20 Prior to liquidation of the partnership, the partners may not request for the division of partnership property, except otherwise provided herein.

Where the partners transfer or dispose of partnership property on their own prior to the liquidation of the partnership, the partnership may not assert such transfer or disposal as a defense to claims by third persons who are in good faith and are without knowledge of such transfer or disposition.

Article 21 In the duration of the partnership, transfer of his share of property in the partnership by a partner to a person other than a partner, whether in whole or in part, shall be subject to unanimous consent by all the partners.

In the event of transfer of share of property in the partnership between the partners, whether in whole or in part, the other partners shall be notified.

Article 22 Where a partner is to transfer his share of property in accordance with the law, the other partners shall have the preemptive right of purchase under the same conditions.

Article 23 Where upon consent by all the partners, a person other than a partner is to be assigned the share of property in the partnership in accordance with the law, after amendment of the partnership agreement, the assignee shall become a partner in the partnership, and shall have the rights and bear the liabilities in accordance with the amended partnership agreement.

Article 24 Where a partner is to pledge his share of property in the partnership, unanimous consent by all the partners shall be required.

Where a partner pledges his share of property in the partnership without unanimous consent by all the partners, such act shall be invalid, or be treated as withdrawal from the partnership; If any loss is caused to the other partners, such partner shall be liable for damages in accordance with the law.

Chapter Four: Conduct Of Partnership Affairs

Article 25 Each partner shall enjoy equal rights with respect to the conduct of partnership affairs, provided that the partnership affairs may be conducted jointly by all the partners, or one or more partners may be appointed to conduct the partnership affairs pursuant to the partnership agreement or the decision by all the partners.

The partner(s) conducting partnership affairs shall act in the behalf of the partnership in dealing with outside parties.

Article 26 Where one or more partners is appointed to conduct partnership affairs pursuant to the provisions in the previous article, the other partners shall no longer conduct partnership affairs.

The partners who do not participate in the conduct of partnership affairs shall be entitled to monitor the partner(s) who conducts partnership affairs, and review the status of the partnership affairs conducted thereby.

Article 27 Where partnership affairs are conducted by one or more partners, they shall report the status of the partnership affairs conducted thereby, and the operating and financial conditions of the partnership to the other partners who do not participate in the conduct of partnership affairs, and all incomes generated from their conduct of partnership affairs shall belong to all the partners, and the losses or civil liabilities incurred therefrom shall be borne by all the partners.

Article 28 A partner shall be entitled to inspect partnership books for the purpose of understanding the operating and financial conditions of the partnership.

Unless otherwise provided herein or in the partnership agreement, where the partners decide upon matters relating to the partnership in accordance with the law or the partnership agreement, the voting method of one vote for each partner may be adopted if unanimously agreed upon by all the partners.

Article 29 Where the partnership agreement or a decision made by all partners provides that partners shall conduct partnership affairs individually, a partner may object to the conduct of a partnership affair by any of the other partners. Where an objection is raised, the execution of such affair shall be suspended. If there is a dispute, such dispute may be decided by all the partners.

Where the partner(s) appointed to conduct partnership affairs fails to conduct partnership affairs in accordance with the partnership agreement or the decision reached by all the partners, the other partners may decide to revoke the appointment.

Article 30 A partner may not engage in any business in competition with the business of the partnership either on his own, or in cooperation with others.

Unless otherwise prescribed in the partnership agreement or otherwise agreed by all the partners, a partner may not conduct any transaction with the partnership.

A partner may not engage in any conduct harmful to the interests of the partnership.

Article 31 The following matters related to the partnership shall be subject to unanimous consent by all the partners:

(i) disposition of any real property of the partnership;

(ii) change of partnership designation;

(iii) transfer or disposal of the intellectual property or other proprietary rights of the partnership;

(iv) application to the enterprise registration authority for registration for change;

(v) provision of security for others in the name of the partnership;

(vi) appointment of anyone other than a partner to a position of management in the partnership;

(vii) the relevant matters set forth in the partnership agreement.

Article 32 The profits or losses of the partnership shall be distributed to or borne by the partners in accordance with the ratio specified in the partnership agreement; where the partnership agreement fails to specify the ratio of profit distribution or loss allocation, the partners shall share equally in the profits and losses.

The partnership agreement may not provide that all profits be distributed to certain partners or that all losses be borne by certain partners.

Article 33 In the duration of the partnership, pursuant to the partnership agreement or the decision reached by all the partners, the partnership may increase the capital contribution in the partnership for the purpose of expanding operation or covering losses.

Article 34 The detailed plan for profit distribution or loss allocation for each year or for certain period shall be decided by the partners after consultation or be decided by a method prescribed in the partnership agreement.

Article 35 The appointed management personnel in the partnership shall perform their duties within the scope authorized by the partnership.

Where an appointed management personnel causes loss to the partnership as a result of conducting business beyond the scope authorized by the partnership, or due to his willful misconduct or gross negligence, he shall be liable for damages in accordance with the law.

Article 36 The partnership shall establish enterprise financial and accounting systems in accordance with the provisions of law and administrative regulations.

Article 37 The partnership shall fulfill its obligations to pay taxes in accordance with the law.

Chapter Five: Relationship Between The Partnership And A Third Person

Article 38 Any restriction imposed by the partnership on a partner with respect to the conduct of partnership affairs or the authority to act in the behalf of the partnership in dealing with outside parties may not be asserted as a defense against a third person who is in good faith and without knowledge of such restriction.

Article 39 The partnership shall pay its debts out of all of its property first. If the partnership property is not sufficient to pay the debts that are due, each partner shall be jointly and severally liable for payment thereof.

Article 40 Where the partnership property is used to pay partnership debts and there is a deficiency, in addition to his capital contribution in the partnership, each partner shall use his property to satisfy his liability for payment of partnership debts in accordance with the ratio determined pursuant to Paragraph 1 of Article 32 hereof.

A partner who has paid more than his share of the debts as a result of his joint and several liability shall be entitled to seek recourse against other partners.

Article 41 A creditor of any one of the partners in the partnership may not set off his debts owed to the partnership with his creditor’s rights against such partner.

Article 42 Where a partner has personal debts, his creditors may not subrogate his creditor’s rights against such partner for the rights which the partner may exercise in the partnership.

Article 43 Where the personal property of a partner is not sufficient to pay his personal debts, such partner may only use the income received from the partnership for payment of such debts; provided that the creditors thereof may, in accordance with the law, petition the People’s Court to attach the partner’s share of the partnership property for full payment of the debts.

With respect to the partner’s share of property in the partnership, other partners shall have the preemptive right of assignment.

Chapter Six: Admission To And Withdrawal From The Partnership

Article 44 For the admission of a new partner to the partnership, the consent of all the partners shall be required, and a written partnership admission agreement shall be concluded.

When the partnership admission agreement is concluded, the original partners shall inform the new partner the original partnership’s operating and financial conditions.

Article 45 The new partner who has been admitted to the partnership shall have equal rights, and share equal liabilities with the original partners. Provided, however, if the partnership admission agreement provides otherwise, such provision shall prevail.

The new partner who has been admitted to the partnership shall be jointly and severally liable for the liabilities incurred by the partnership prior to his admission.

Article 46 Where the partnership agreement prescribes an operating term for the partnership, a partner may withdraw from the partnership in any of the following circumstances:

(i) A cause for withdrawal prescribed in the partnership agreement has occurred;

(ii) The withdrawal is consented by all the partners;

(iii) A cause has occurred which renders the partner’s continued participation in the partnership difficult;

(iv) Other partners have seriously breached their duties prescribed in the partnership agreement.

Article 47 Where the partnership agreement does not prescribe an operating term for the partnership, a partner may withdraw from the partnership if such withdrawal will not adversely impact on the conduct of the partnership affairs, provided that the other partners shall be notified 30 days in advance.

Article 48 Where a partner withdraws from the partnership unilaterally in violation of the previous two articles, such partner shall compensate the other partners for the losses they have suffered as a result.

Article 49 In any of the following circumstances, it is mandatory that a partner withdraws from the partnership:

(i) The partner is deceased or is adjudged to be deceased;

(ii) The partner is adjudged to be without capacity for civil act;

(iii) The partner is personally insolvent;

(iv) All of the partner’s share of property in the partnership has been attached by the People’s Court;

The effective date of withdrawal from the partnership shall be the actual date of occurrence of any of the circumstances enumerated in the previous paragraph.

Article 50 Where a partner falls into any of the following categories, he may be expelled from the partnership by a resolution adopted after unanimous agreement is reached by the other partners:

(i) The partner fails to fulfill his obligations in respect of making capital contribution;

(ii) The partner has caused loss to the partnership due to his willful misconduct or gross negligence;

(iii) The partner engages in improper conduct while conducting partnership affairs;

(iv) Other causes specified in the partnership agreement.

The resolution to expel a partner shall be delivered to the partner in writing. The expulsion shall become effective as of the date of receipt of notice of expulsion, and the expelled partner shall withdraw from the partnership.

Where the expelled partner objects to the resolution for expulsion, he may bring a suit to the People’s Court within 30 days of the date of receipt of the notice of expulsion.

Article 51 Where a partner is deceased or is adjudged to be deceased, the heir(s) who has the legal right of inheritance to the partner’s share of property in the partnership, in accordance with the provision in the partnership agreement or with the consent of all partners, shall obtain the status of a partner in the partnership as of the date of inheritance.

Where the legal heir(s) does not intend to become a partner in the partnership, the partnership shall redeem the share of property in the partnership which is legally inherited by such heir(s).

Where the legal heir(s) is a minor, with the consent of all the other partners, the guardian thereof may exercise his rights in his behalf during the period of his minority.

Article 52 Where a partner withdraws from the partnership, the other partners shall conduct settlement therewith in light of the conditions of the partnership property at the time of withdrawal, and redeem the withdrawing partner’s share of the property.

Where there are pending partnership affairs at the time of withdrawal, the settlement shall be conducted upon the completion of the partnership affairs.

Article 53 The method for redeeming the withdrawing partner’s share of partnership property shall be prescribed in the partnership agreement or decided by all the partners, and can be either distribution of cash, or distribution of tangible goods.

Article 54 A withdrawing partner shall be jointly and severally liable for the debts of the partnership incurred prior to his withdrawal, as are all the other partners.

Article 55 When a partner withdraws from the partnership, if the partnership property is less than the partnership liabilities, the withdrawing partner shall share the loss in accordance with Paragraph 1 of Article 32 hereof.

Article 56 Where the registered items have changed or need to be re-registered due to withdrawal or admission of partners, amendment of the partnership agreement, etc. , the relevant registration shall be conducted with the enterprise registration authority within 15 days of the date of the decision for change or the occurrence of the change.

Chapter Seven: Dissolution And Liquidation Of The Partnership

Article 57 The partnership shall be dissolved in any of the following circumstances:

(i) The partnership term prescribed by the partnership agreement has expired and the partners are unwilling to continue the operation of the partnership;

(ii) A cause for dissolution stipulated in the partnership has occurred.

(iii) All the partners decide to dissolve the partnership;

(iv) The number of partners no longer meets legal requirement;

(v) The partnership purpose prescribed by the partnership agreement has been accomplished, or is not capable of being accomplished;

(vi) The business license of the partnership is revoked in accordance with the law;

(vii) Any other cause for dissolution of the partnership as stipulated by law or administrative regulations has occurred.

Article 58 Upon dissolution of the partnership, liquidation shall be conducted, and the creditors shall be notified through notice or public announcement.

Article 59 Where the partnership is dissolved, the liquidating members shall be composed of all the partners; where not all the partners are able to serve as liquidating members, upon consent by a majority of the partners, one or more partners may be designated, or a third person may be appointed, to serve as the liquidating member(s) within 15 days of the dissolution of the partnership.

Failure to appoint the liquidating member(s) shall entitle the partners or other interested persons to petition the People’s Court for appointment of the liquidating member(s).

Article 60 The liquidating member(s) shall carry on the following affairs during the liquidation:

(i) identifying the partnership assets, and preparing a balance sheet and a schedule of assets separately;

(ii) settling unfinished partnership affairs which are related to liquidation;

(iii) making full payment of taxes owed;

(iv) sorting out the partnership’s creditor’s rights, and debtor’s liabilities;

(v) disposing of the remaining assets of the partnership after full payment of debts;

(vi) participating in civil suits in the behalf of the partnership.

Article 61 After payment of liquidating expenses, the remaining property shall be distributed in the following order:

(i) the wages and labor insurance expense owed to the workers hired by the partnership.

(ii) taxes owed by the partnership;

(iii) debts owed by the partnership;

(iv) redemption of the capital contribution by the partners.

If there is a surplus of partnership property after payments have been made in the above order, the surplus shall be distributed in accordance with the ratio prescribed in Paragraph 1 of Article 32 hereof.

Article 62 During the partnership liquidation, if the total partnership property is not sufficient to satisfy its debts, the situation shall be handled in accordance with the provisions in Article 39 and Article 40 hereof.

Article 63 Upon dissolution of the partnership, the original partners shall be jointly and severally liable for the debts incurred by the partnership in its duration, provided that the liability shall terminate if the creditors fail to make a claim against the debtors within 5 years.

Article 64 Upon completion of the liquidation, a liquidation report shall be prepared, and after all the partners have signed or impressed their chops thereon, the liquidation report shall be filed with the enterprise registration authority with 15 days, and the de-registration of the partnership shall be carried out therewith.

Chapter Eight: Legal Liabilities

Article 65 If the enterprise registration is obtained by submission of false documents or by other fraudulent means in violation hereof, rectification shall be ordered, and a fine of not more than 5,000 Yuan may be imposed; where the circumstance is serious, the enterprise registration shall be canceled.

Article 66 If the word “Limited” or “Limited Liability” is used in the designation of the partnership in violation hereof, rectification within a prescribed time limit shall be ordered, and a fine of not more than 2,000 Yuan may be imposed.

Article 67 If business is conducted in the name of the partnership while its business license is not issued, such business shall be ordered to cease operation, and a fine of not more than 5,000 Yuan may be imposed.

If the partnership fails to conduct the relevant registration for change in accordance herewith when a registered item has changed, registration within a prescribed time limit shall be ordered; if the partnership fails to conduct the registration after the prescribed time limit has expired, a fine of 2,000 Yuan shall be imposed.

Article 68 If in the course of conducting partnership affairs, a partner appropriates to himself the interest which shall belong to the partnership, or convert the partnership property by other means, such partner shall be ordered to revert the interest or the property back to the partnership; if any loss is caused to the partnership or other partners, such partner shall be liable for damages in accordance with the law; where such action constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 69 If a partner, without authorization, conducts a partnership affair which is subject to consent by all the partners as stipulated herein or in the partnership agreement, and causes loss to the partnership and other partners, such partner shall be liable for damages in accordance with the law.

Article 70 If a partner who is not authorized to conduct partnership affairs conducts partnership affairs without authorization, causing loss to the partnership and other partners, such partner shall be liable for damages in accordance with the law.

Article 71 If a partner engages in business in competition with the partnership, or engages in any transaction with the partnership in violation of Article 30 hereof, causing losses to the partnership and other partners, such partner shall be liable for damages in accordance with the law.

Article 72 If a worker employed by the partnership usurps his working privileges to illegally appropriate partnership property to himself, or appropriate partnership funds for personal use, such person shall be civilly liable in accordance with the law; where such action constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 73 If the liquidating member fails to submit a liquidation report to the enterprise registration authority in accordance with the provisions hereof, or submits a liquidation report which conceals any material fact, or has any material omission, rectification shall be ordered.

Article 74 If while serving as a liquidating member, a partner seeks illegal income or convert partnership property while conducting liquidating affairs, such person shall be ordered to revert such income or converted property back to the partnership, and shall be liable for damages in accordance with the law; where such action constitutes a crime, criminal liability shall be pursued in accordance with the law.

If a liquidating member appointed by the partnership commits any act referred to in the previous paragraph, such person shall be ordered to revert such income or converted property back to the partnership, and shall be liable for damages in accordance with the law; where such action constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 75 If in violation hereof, the liquidating member(s) conceals or transfers partnership property, makes false records in the balance sheet or schedule of assets, or distributes partnership property prior to full payment of debts, rectification shall be ordered; where creditors’ interests are harmed, such person shall be liable for damages in accordance with the law; where such action constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 76 If a partner breaches the partnership agreement, he shall be liable for breach of contract in accordance with the law.

Where there is a dispute among the partners concerning the performance of the partnership agreement, the partners may resolve the dispute through consultation or mediation. If the partners are unwilling to resolve the dispute through consultation or mediation, or consultation or mediation has failed, the dispute may be submitted to an arbitration institution for arbitration in accordance with the arbitration clause in the partnership agreement or a written arbitration agreement concluded after the occurrence of the dispute. Where the parties did not set forth an arbitration clause in the partnership agreement, and the parties failed to reach an arbitration agreement after the occurrence of the dispute, a suit may be brought to the People’s Court.

Article 77 If the relevant administrative authorities and the personnel thereof, in violation of the provisions hereof, engage in abuse of authority, in improper conducts for personal gains, in acceptance of bribes, harming the lawful rights and interests of the partnership, administrative penalty shall be imposed in accordance with the law; where such action constitutes a crime, criminal liability shall be pursued in accordance with the law.

Chapter Nine: Supplementary Provisions

Article 78 This Law shall become operative as of August 1, 1997.

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THE COMPANY LAW OF THE PEOPLE’S REPUBLIC OF CHINA

(Adopted at the 5th Session of the Standing Committee of the 8th National People’s Congress on December 29, 1993, and Promulgated by Presidential Order of the People’s Republic of China ( No. 16) on December 29, 1993, and Amended on December 25, 1999)

TABLE OF CONTENTS

Chapter One: General Provisions

Chapter Two: Establishment and Organs of Limited Liability Company

Section One. Establishment

Section Two. Organs

Section Three. Wholly State-owned Company

Chapter Three: Establishment and Organs of Joint Stock Limited Company

Section One. Establishment

Section Two. Shareholders’ general committee

Section Three. Board Of Directors And General Manager

Section Four. Board Of Supervisors

Chapter Four: Issue and Transfer of Shares of Joint Stock Limited Company

Section One. Issue Of Shares

Section Two. Transfer Of Shares

Section Three. Listed Company

Chapter Five: Company Bonds

Chapter Six: Financial and Accounting Affairs of Company

Chapter Seven: Merger and Division of Company

Chapter Eight: Bankruptcy, Dissolution and Liquidation of Company

Chapter Nine: Branch of Foreign Company

Chapter Ten: Legal Liabilities

Chapter Eleven: Supplementary Provisions

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Chapter One: General Provisions

Article 1 This Law is enacted in accordance with the Constitution, in order to meet the needs of establishing a modern enterprise system, to regulate the organization and conduct of companies, to protect the lawful rights and interests of companies as well as the shareholders and creditors thereof, to maintain social and economic order, and to promote the development of the socialist market economy.

Article 2 A company referred to herein means a limited liability company or a joint stock limited company established within China in accordance herewith.

Article 3 Limited liability companies and joint stock limited companies are enterprise legal persons.

In the case of a limited liability company, the shareholders are liable thereto to the extent of their capital contribution, and the company is liable for its debts to the extent of all of its assets.

In the case of a joint stock limited company, its total capital is divided into stocks of equal value, and the shareholders are liable thereto to the extent of their share holdings, and the Company is liable for its debts to the extent of all of its assets.

Article 4 As contributors of capital, the shareholders of a company enjoy the rights of proprietors in proportion to their respective share of capital contributions to the company, such as deriving benefits from its assets, making major decisions, and selecting its management.

The company enjoys the full property rights of a legal person in respect of assets resulting from the investment by its shareholders, and enjoys civil rights and bears civil liabilities in accordance with the law.

Title to the state-owned assets in the company shall vest in the State.

Article 5 A company, with all of its assets owned by it as a legal person, shall operate autonomously and be responsible for its own profit and loss in accordance with the law.

The company shall, under the state’s macro-regulation, organize its production and operation autonomously in light of market demand, with a view to improving economic return and productivity, and accomplishing the preservation and increase of the value of its assets.

Article 6 A company shall adopt an internal management system which clearly sets out the rights and responsibilities of the relevant parties, is conducive to scientific management, and combines incentive with check and balance.

Article 7 If a state-owned enterprise is to be reorganized into a company, it must, in accordance with the conditions and requirements prescribed by national statutes and administrative regulations, change its operating mechanism, and orderly identify and verify its assets, determine the respective owners of the property rights therein, settle its creditor’s rights and liabilities, conduct assets appraisal, and set up standard internal management organs.

Article 8 The establishment of a limited liability company or a joint stock limited company is subject to the requirements prescribed herein. An entity meeting the requirements prescribed herein may be registered as a limited liability company, or a joint stock limited company, as the case may be; an entity failing to meet the requirements prescribed herein may not be registered as a limited liability company, or a joint stock limited company, as the case may be.

Where the establishment of a company is subject to examination and approval as required by the relevant national statutes or administrative regulations, examination and approval procedure must be carried out in accordance with the law prior to its registration.

Article 9 The name of a limited liability company established in accordance herewith must contain the words “limited liability company”.

The name of a joint stock limited company established in accordance herewith must contain the words “joint stock limited company”.

Article 10 The Company shall be domiciled at the place where its principal executive office is located.

Article 11 In order to establish a company, its articles of association must be prepared in accordance herewith. The articles of association of the company are binding upon the company and its shareholders, directors, supervisors and general manager.

The company’s business scope shall be prescribed by its articles of association and be registered in accordance with the law. If an item in the Company’s business scope is subject to any restriction prescribed by any national statute or administrative regulation, approval for such item shall be obtained in accordance with the law.

The company shall conduct its business within its registered business scope. The Company may change its business scope by amending its articles of association in accordance with legally prescribed procedure and registering such amendment with the company registration authority.

Article 12 A Company may invest in another limited liability company or joint stock limited company, and is liable to such company to the extent of its capital contribution.

Except for an investment company or a holding company stipulated by the State Council, where a company is to invest in other limited liability companies or joint stock limited companies, its cumulative investment may not exceed 50 percent of its net assets, provided that if after the investment, the capital is increased using profit distribution received from the company in which it invested, the increased amount shall not be included.

Article 13 A company may establish branch companies, which do not have the status of enterprise legal persons, and the civil liabilities thereof shall be borne by the company.

The company may establish subsidiary companies, which have the status of enterprise legal persons and bear civil liabilities independently in accordance with the law.

Article 14 In conducting its business, a company must abide by the law, observe industry ethics, strengthen the development of socialist spiritual civilization, and subject itself to supervision by the government and the public.

The company’s lawful rights and interests are protected by law and shall not be infringed upon.

Article 15 A company must protect the lawful rights and interests of its workers, strengthen labor protection, and achieve workplace safety.

The company shall strengthen the professional education and on the job training of its workers in various forms, so as to improve their quality.

Article 16 The workers of a company shall organize a labor union, which shall conduct union activities and safeguard the lawful rights and interests of the workers in accordance with the law. The Company shall provide the necessary conditions for its labor union to conduct its activities.

In accordance with the Constitution and other relevant national statutes, democratic management in the form of workers’ assembly and other forms shall be adopted in a wholly state-owned company or a limited liability company established through investment by two or more state-owned enterprises or by two or more state-owned investment entities of other kinds.

Article 17 Activities of the elementary-level cell of the Chinese Communist Party in a company shall be conducted in accordance with the Charter of the Chinese Communist Party.

Article 18 Limited liability companies with foreign investment are subject to this Law, provided that where the provisions of national statutes governing Sino-foreign equity joint venture enterprises, Sino-foreign cooperative joint venture enterprises, and wholly foreign owned enterprises stipulate otherwise, the stipulations therein shall prevail.

Chapter Two: Establishment And Organs Of A Limited Liability Company

Section One Establishment

Article 19 The establishment of a limited liability company is subject to the following conditions:

(i) The number of shareholders meets legal requirement;

(ii) The amount of shareholders’ capital contribution reaches the minimum level prescribed by law;

(iii) The shareholders jointly prepare the articles of association;

(iv) There is a company name, and the organs meeting the requirements for a limited liability company are established;

(v) There is a permanent place of business and there are necessary conditions for production and operation.

Article 20 A limited liability company shall be established through joint investment by not fewer than 2 but not more than 50 shareholders.

A state authorized investment entity or state authorized department may establish wholly state-owned limited liability companies as the sole investor.

Article 21 In the case of a state-owned enterprise established before this Law becomes operative, if it meets the conditions prescribed herein for the establishment of a limited liability company, it may be reorganized into a wholly state-owned limited liability company in accordance herewith if it was established by a single investment entity, or it may be reorganized into a limited liability company pursuant to Paragraph 1 of the previous Article if it was established by more than one investment entities.

The implementing procedures and detailed measures for reorganizing state-owned enterprises into companies shall be separately prescribed by the State Council.

Article 22 The articles of association of a limited liability company shall set forth the following:

(i) its name and domicile;

(ii) its business scope;

(iii) its registered capital;

(iv) the names of its shareholders;

(v) the rights and obligations of its shareholders;

(vi) the forms and amounts of capital contribution made by shareholders;

(vii) the conditions under which the shareholders’ shares of capital contribution may be assigned;

(viii) its organs, the manners in which they are established and their respective powers, and the rules governing their conduct of business;

(ix) its legal representative;

(x) the causes for its dissolution and the method for its liquidation;

(xi) other matters which shareholders deem necessary to provide for.

Shareholders shall sign or impress their chops on the articles of association.

Article 23 The registered capital of a limited liability company is the amount of capital contribution actually paid up by all shareholders and registered with the company registration authority.

The registered capital of a limited liability company shall not be less than:

(i) Renminbi 500,000 Yuan if it primarily engages in production;

(ii) Renminbi 500,000 Yuan if it primarily engages in commodity wholesale;

(iii) Renminbi 300,000 Yuan if it primarily engages in commodity retail;

(iv) Renminbi 100,000 Yuan if it engages in scientific and technical development, consulting or service.

If for a specific industry, the required minimum registered capital exceeds any of the minimum levels prescribed above, such minimum requirement shall be separately prescribed by the relevant national statute or administrative regulations.

Article 24 Shareholders may contribute their capital in the form of cash, as well as in the forms of tangible goods, industrial property, non-patented technology and land use rights at certain value. If any tangible goods, industrial property, non-patented technology or land use rights are contributed as capital, they must be appraised and the property rights therein must be verified, and the contributed items may not be over-valued or under-valued. Appraisal on land use rights shall be carried out in accordance with the provisions of the relevant national statute and administrative regulations.

Where industrial property or non-patented technology is contributed as capital at certain value, its valuation shall not exceed 20 percent of the total registered capital, except where the state makes special provisions for companies utilizing high and new technologies.

Article 25 Each shareholder shall invest in full the capital contribution which he has subscribed for in accordance with the articles of association. If a shareholder makes his capital contribution in cash, he shall deposit in full the amount of such cash capital contribution into a temporary bank account opened for the contemplated limited liability company; If capital contribution is made in the form of tangible goods, industrial property, non-patented technology or land use rights, the appropriate transfer procedure for the property rights therein shall be carried out in accordance with the law.

A shareholder who fails to invest the capital contribution which he has subscribed for in accordance with the previous Paragraph is liable for breach of contract to those shareholders who have invested in full the capital contribution they have subscribed for.

Article 26 Upon investment in full of their respective capital contribution by the shareholders, a legally-prescribed capital verification institution must carry out capital verification procedure and issue a certificate.

Article 27 After a legally-prescribed capital verification institution has verified the shareholders’ full capital contribution, a representative designated by all shareholders or the agent appointed jointly thereby shall apply to the company registration authority for establishment registration and submit thereto documents such as the company registration application form, the articles of association, and the capital verification certificate, etc.

Where approval by the relevant authority is required by the relevant national statute or administrative regulations, the approval document shall be submitted at the time of applying for establishment registration.

The company registration authority shall grant registration to an applicant who meets the requirements prescribed herein and shall issue a company business license, and shall not grant registration to an applicant who fails to meet the requirements prescribed herein.

The date of issuance of a company business license shall be the establishment date for a limited liability company.

Article 28 If after the establishment of a limited liability company, it is discovered that the actual value of the tangible goods, industrial property, non-patented technology, or land use rights contributed as capital is significantly below their value fixed in the articles of association, the shareholder who contributed such item as capital shall contribute the difference in value, and the other shareholders of the company at the time it was established shall be jointly and severally liable.

Article 29 Where a branch company is to be established contemporaneous with the establishment of a limited liability company, an application for registration of such branch company shall be submitted to the company registration authority, and it shall be issued a business license.

Where a branch company is to be established after the establishment of the limited liability company, the company’s legal representative shall apply to the company registration authority for registration of such branch company, and it shall be issued a business license.

Article 30 Upon the establishment of a limited liability company, each shareholder shall be issued a capital contribution certificate, which shall set forth the following:

(i) the name of the company;

(ii) the date of registration of the company;

(iii) the company’s registered capital;

(iv) the name of the shareholder, the amount of his capital contribution, and the date of capital contribution;

(v) the serial number and date of issuance of the capital contribution certificate.

The company’s chop shall be impressed on each capital contribution certificate.

Article 31 A limited liability company shall maintain a record of shareholders, which shall set forth the following:

(i) the name of each shareholder and the domicile thereof;

(ii) the amount of capital contribution invested by each shareholder;

(iii) the serial number of each capital contribution certificate.

Article 32 Shareholders are entitled to inspect the minutes of meetings of shareholder committee as well as the financial and accounting reports of the company.

Article 33 Shareholders shall share in the distribution of profits in proportion to their respective shares of capital contribution. Where the company is to increase its capital, its shareholders have the preemptive right to subscribe for the increased amount.

Article 34 A shareholder may not withdraw its capital contribution after registration of the company.

Article 35 Shareholders may assign in whole or part their respective shares of capital contribution amongst themselves.

Transfer of his share of capital contribution by a shareholder to anyone other than another shareholder is subject to consent by a majority of all the shareholders; shareholders who do not consent to the transfer shall purchase the share of capital contribution to be assigned, and failure by those shareholders to make such purchase is deemed to be their consent to the assignment.

Where the shareholders consent to the assignment of share of capital contribution, other shareholders have the preemptive right of purchase under the same conditions.

Article 36 Upon a shareholder’s lawful assignment of his share of capital contribution, the company shall record on the record of shareholders the name of the assignee, the domicile thereof and the amount of capital assigned thereto.

Section Two Organs

Article 37 The shareholders’ committee of a limited liability company consists of all the shareholders, and the shareholders’ committee is the company’s organ of authority, and shall exercise its powers in accordance herewith.

Article 38 The shareholders’ committee shall exercise the following powers:

(i) determining the company’s operational guidelines and investment plans;

(ii) electing and replacing directors, and deciding upon matters relating to their remuneration;

(iii) electing and replacing supervisors who represent the shareholders, and deciding upon matters relating to the remuneration of supervisors;

(iv) considering and approving reports by the board of directors;

(v) considering and approving reports by the board of supervisors or the supervisor, as the case may be;

(vi) considering and approving annual financial budget plans and final accounting plans of the company;

(vii) considering and approving company profit distribution plans and plans to cover company losses;

(viii) adopting resolutions relating to increase or reduction of the company’s registered capital;

(ix) adopting resolutions relating to issuance of company bonds;

(x) adopting resolutions relating to assignment of share of capital contribution by a shareholder to anyone other than a shareholder of the company;

(xi) adopting resolutions relating to merger, division, change of corporate form, dissolution and liquidation of the company;

(xii) amending the articles of association.

Article 39 Unless otherwise provided herein, the method for conducting business and voting procedure at a meeting of shareholders’ committee shall be prescribed by the articles of association.

Any resolution adopted by the shareholders’ committee relating to the company’s increase or reduction of registered capital, division, merger, dissolution or change of corporate form requires affirmative votes by shareholders representing two-thirds of the votes.

Article 40 A company may amend its articles of association. Adoption of a resolution to amend the articles of association requires affirmative votes by shareholders representing two-thirds of the votes.

Article 41 Shareholders shall exercise their voting rights at the meeting of shareholders’ committee in proportion to their respective shares of capital contribution.

Article 42 The first meeting of shareholders committee shall be called and presided over by the shareholder with the largest share of capital contribution, and shall exercise its powers in accordance herewith.

Article 43 Meetings of shareholders committee are classified as either regular meetings or interim meetings.

Regular meetings shall be timely held as prescribed in the articles of association. Shareholders representing one-fourth or more of the votes, or one-third of the directors or supervisors, may propose for an interim meeting.

Where a limited liability company has a board of directors, a meeting of shareholders committee shall be called by the board, and presided over by the chairman of the board; where the chairman is unable to perform his duties due to any special reason, the meeting shall be presided over by the vice-chairman or another director appointed by the chairman.

Article 44 In order to hold a meeting of shareholders committee, notice shall be given to all shareholders 15 days in advance.

The shareholders’ committee shall prepare minutes regarding the decisions on matters considered at the meeting of shareholders committee, which shall be signed by the shareholders attending the meeting.

Article 45 A limited liability company shall have a board of directors, which shall be composed of not fewer than 3 but not more than 13 directors.

Where a limited liability company has been established through investment by two or more state-owned enterprises, or by two or more state-owned investment entities of other kinds, there shall be representative(s) of the workers of the company on the board of directors. The representative(s) of the workers on the board shall be democratically elected by the workers of the company.

The board shall have one chairman, and may have one to two vice-chairmen. The manner in which the chairman and vice-chairman are selected shall be prescribed by the articles of association.

The chairman is the legal representative of the company.

Article 46 The board of directors is accountable to the shareholders’ committee, and shall exercise the following powers:

(i) being responsible for calling meetings of shareholders committee and presenting reports thereto;

(ii) implementing resolutions adopted by the shareholders’ committee;

(iii) determining the company’s operational plans and investment programs;

(iv) preparing annual financial budget plans and final accounting plans of the company;

(v) preparing profit distribution plans and plans to cover company losses;

(vi) preparing plans for increasing or reducing registered capital of the company;

(vii) drafting plans for merger, division, change of corporate form or dissolution of the company;

(viii) determining the structure of the company’s internal management;

(ix) appointing or removing the manager (general manager) (Hereinafter referred to as the “general manager”) of the company, appointing or removing, upon the general manager’s recommendation, deputy managers of the company and the officer in charge of finance, and determining the remuneration for those officers;

(x) formulating the basic management scheme of the company.

Article 47 The term of the directors shall be prescribed by the articles of association, provided that each term may not exceed 3 years. A director may continue to serve his post if he is re-elected upon the expiration of his term.

Prior to expiration of a director’s term, the shareholders’ committee may not remove him without cause.

Article 48 A meeting of the board of directors shall be called and presided over by the chairman; in the event that the chairman is unable to perform his duties due to any special reason, the chairman shall appoint the vice-chairman or another director to call and preside over the meeting. One-third or more of the directors may propose for a meeting of the board.

Article 49 Unless otherwise provided herein, the method for conducting business and voting procedure at the meeting of board of directors shall be prescribed by the articles of association.

In order to hold a board meeting, notice shall be given to all directors 10 days in advance.

The board shall prepare minutes relating to the decisions on matters considered at the meeting, which shall be signed by the directors attending the meeting.

Article 50 A limited liability company shall have a general manager, to be appointed or removed by the board of directors. The general manager is accountable to the board and shall exercise the following powers:

(i) being in charge of the management of the company’s production and operation, and organizing the implementation of board resolutions;

(ii) organizing the implementation of annual operating plans and investment programs of the company;

(iii) preparing the plan for the structure of the company’s internal management;

(iv) preparing the basic management scheme of the company;

(v) formulating detailed company rules;

(vi) recommending the appointment or removal of a deputy general manager and the officer in charge of finance;

(vii) appointing and removing officers of the company other than those to be appointed or removed by the board;

(viii) other powers prescribed by the articles of association or delegated by the board.

The general manager shall be present at board meetings.

Article 51 A small-scaled limited liability company with only a few shareholders may have an executive director without establishing a board of directors. The executive director may serve concurrently as the general manager of the company.

The powers of the executive director shall be prescribed in the articles of association by reference to the provisions of Article 46 hereof.

Absent a board of directors, the executive director of a limited liability company shall be the legal representative thereof.

Article 52 A large-scaled limited liability company shall have a board of supervisors, which shall be composed of not fewer than 3 members. The board of supervisors shall elect one of its members as the person responsible for calling meetings.

The board of supervisors shall be composed of shareholders’ representative(s) and representative(s) of the workers’ of the company at an appropriate ratio to be specifically prescribed in the articles of association. The workers’ representative(s) on the board of supervisors shall be democratically elected by the workers of the company.

A small-scaled limited liability company with only a few shareholders may have one or two supervisors.

A director, the general manager and the officer in charge of finance may not serve concurrently as a supervisor.

Article 53 Each term of a supervisor shall be 3 years, and a supervisor may continue to serve his post upon expiration of his term if he is re-elected.

Article 54 The board of supervisors or the supervisor, as the case may be, shall exercise the following authorities:

(i) reviewing the financial affairs of the company;

(ii) monitoring the acts of the directors or the general manager to guard against violation of national statutes, administrative regulations or the articles of association in the course of performance of their duties;

(iii) requiring the directors or the general manager to make rectification when any act thereof causes harm to company interests;

(iv) proposing for interim meetings of shareholders’ committee;

(v) other authorities prescribed by the articles of association.

The supervisors shall be present at board meetings.

Article 55 When a company considers and decides upon matters which affect the personal interests of its workers, such as their wages, benefits, production safety and labor protection, or labor insurance, it shall first hear the opinions of the labor union and the workers of the company, and invite representatives of the labor union or the workers to be present at related meetings.

Article 56 When a company considers and decides upon major matters relating to its production and operation, or formulates important rules and standards, it shall hear the opinions and suggestions of the labor union and the workers.

Article 57 A person in any of the following categories may not serve as a director, supervisor, or the general manager of a company:

(i) without civil capacity or with limited civil capacity;

(ii) having been sentenced to prison for the following crimes, and completion of the sentence being less than 5 years ago: embezzlement, bribery, conversion of property, misappropriation of property, sabotage of social economic order; or having been deprived of political rights as a result of a criminal conviction, and completion of such sanction being less than 5 years ago;

(3) having served as a director, the factory chief, or the general manager of a company or enterprise which underwent bankruptcy liquidation as a result of mismanagement, and being personally responsible for such bankruptcy, and completion of the bankruptcy liquidation being less than 3 years ago;

(4) having served as the legal representative of a company or enterprise whose business license was revoked due to its violation of law, and being personally responsible for such revocation, and such revocation occurring less than 3 years ago;

(5) in default of personal debt of a significant amount.

If the company elects or appoints a director or supervisor or employs the general manager in violation of the above Paragraph, such election, appointment or employment is invalid.

Article 58 No public servant may concurrently serve as a director, supervisor or the general manager of a company.

Article 59 A directors, supervisor, or the general manager shall abide by the articles of association, faithfully perform their duties, and safeguard the interests of the company, and may not abuse their positions and authorities at the company for private gain.

A directors, supervisor, or the general manager may not abuse their authorities by accepting bribes or generating other illegal income, and may not convert company property.

Article 60 A director or the general manager may not misappropriate company funds or loan company funds to other people.

A director or the general manager may not deposit company assets into an account in his own name or in any other individual’s name.

A director or the general manager may not give company assets as security for the debt of a shareholder or any other individual.

Article 61 A director or the general manager may not engage in the same business as the company in which he serves as a director or the general manager either for his own account or for any other person’s account, or engage in any activity detrimental to company interests. If a director or the general manager engages in any of the above mentioned business or activity, any income so derived shall be turned over to the company.

Unless otherwise provided in the articles of association or otherwise agreed by the shareholders’ committee, a director or the general manager may not execute any contract or engage in any transaction with the company.

Article 62 Unless required by law or consented to by the shareholders’ committee, a director, supervisor, or the general manager may not disclose the company’s confidential information.

Article 63 If a director, supervisor or the general manager causes detriment to the company while performing his duties in violation of any national statute, administrative regulation or the articles of association, he shall be liable for the loss so caused.

Section Three Wholly State-owned Companies

Article 64 A wholly state-owned company referred to herein means a limited liability company established through sole investment by a state authorized investment entity or state authorized department.

Companies designated by the State Council to produce special products or in special industries shall adopt the form of a wholly state-owned company.

Article 65 The articles of association of a wholly state-owned company may be formulated by the state authorized investment entity or state authorized department in accordance with the provisions hereof, or may be prepared by its board of directors and submitted to the state authorized investment entity or state authorized department for approval.

Article 66 A wholly state-owned company shall not have a shareholders’ committee, and the state authorized investment entity or state authorized department shall authorize the board of directors to exercise part of the authorities of the shareholders’ committee, and to decide on major matters of the company, provided that matters such as merger, division or dissolution of the company, capital increase or reduction by the company, and issue of company bonds must be decided by the state authorized investment entity or state authorized department.

Article 67 (Amended) The Supervisory Committee of a wholly State-owed Company shall comprise personnel appointed by the State Council or agencies or departments, and staff representative(s). There shall be no fewer than three supervisors. The Supervisory Committee shall exercise the authorities enumerated in Items (i) and (ii) of Paragraph 1 of Article 54 hereof, as well as other authorities granted by the State Council. The supervisors shall be present at the meetings of board of directors. A director, the manager and the person in charge of finance shall not serve as a supervisor concurrently.

Article 68 A wholly state-owned company shall have a board of directors, which shall perform its duties in accordance with the provisions of Article 46 and Article 66 hereof. Each term of the board of directors shall be 3 years.

There shall be not fewer than 3 but not more than 9 members on the board, to be appointed or replaced by the state authorized investment entity or state authorized department according to the terms of the board. There shall be representative(s) of the workers on the board. The workers’ representative(s) on the board shall be democratically elected by the workers.

The board of directors shall have a chairman, and if needed, a vice-chairman. The chairman and vice-chairman shall be appointed by the state authorized investment entity or state authorized department from the board members.

The chairman of the board is the legal representative of the company.

Article 69 A wholly state-owned company shall have a general manager, to be appointed or removed by the board of directors. The general manager shall perform his duties in accordance with the provisions of Article 50 hereof.

If approved by the state authorized investment entity or state authorized department, a board member may serve concurrently as the general manager.

Article 70 Absent approval by the state authorized investment entity or state authorized department, the chairman, vice-chairman, a director, or the general manager may not serve concurrently as the person in charge of any other limited liability company, joint stock limited company or any other business organization.

Article 71 In the case of assignment of the assets of a wholly state-owned company, the state authorized investment entity or state authorized department shall carry out examination and approval, and the formalities for transfer of property rights shall be carried out in accordance with the relevant national statutes and administrative regulations.

Article 72 A large-scaled wholly state-owned company with sound operating and management system and good operating condition may be authorized by the State Council to exercise the proprietor’s rights in respect of its assets.

Chapter Three: Establishment And Organs Of A Joint Stock Limited Company

Section One Establishment

Article 73 The establishment of a joint stock limited company is subject to the following conditions:

(i) The number of sponsors meets legal requirement;

(ii) The amount of capital stocks subscribed for by the sponsors and publicly placed reaches the legally-prescribed minimum capital level;

(iii) The issue of its shares and the preparation for its establishment comply with the law;

(iv) The sponsors prepare the articles of association, and such articles of association are adopted by the establishment meeting;

(v) There is a company name, and the organs complying with the requirements for a joint stock limited company are established;

(vi) There is a permanent place of business and there are necessary conditions for production and operation.

Article 74 A joint stock limited company may be established either by sponsorship or public share offer.

Establishment by sponsorship means establishment of the company through subscription by the sponsors for all the shares to be issued by the company.

Establishment by public share offer means establishment of the company through subscription by sponsors for part of the shares to be issued by the company, and public placement of the remaining shares.

Article 75 In order to establish a joint stock limited company, there shall be not fewer than 5 sponsors, half of whom shall be domiciled in China.

In the case of reorganization of a state-owned enterprise into a joint stock limited company, there may be fewer than 5 sponsors, provided that such joint stock limited company shall be established by public share offer.

Article 76 Sponsors of a joint stock limited company must subscribe for the shares as required and conduct preparations for the establishment of the company in accordance herewith.

Article 77 Establishment of a joint stock limited company is subject to approval by the department authorized by the State Council, or the People’s Government at the provincial level.

Article 78 The registered capital of a joint stock limited company shall be the total amount of share capital which is paid in and registered with the company registration authority.

The minimum registered capital of a joint stock limited company may not be less than Renminbi 10,000,000 Yuan. Where the minimum level of registered capital required for a joint stock limited company exceeds the minimum level prescribed above, such minimum level shall be separately prescribed by the relevant national statutes and administrative regulations.

Article 79 The articles of association of a joint stock limited company shall set forth the following:

(i) its name and domicile;

(ii) its business scope;

(iii) the method for its establishment;

(iv) the total number of shares of the company, the value of each share, and the registered capital of the company;

(v) the names of the sponsors and the number of shares they have subscribed for;

(vi) the rights and obligations of shareholders;

(vii) the composition of the board of directors, its authorities, term, and rules of conducting business;

(viii) its legal representative;

(ix) the composition of the board of supervisors, its authorities, term, and rules of conducting business;

(x) the method for company profit distribution;

(xi) the causes for its dissolution and the method for its liquidation;

(xii) the method for giving notice and making public announcement;

(xiii) other matters which the shareholders’ general committee deems necessary to provide for.

Article 80 A sponsor may contribute his share capital in the form of cash, or in the form of tangible goods, industrial property, non-patented technology or land use rights at certain value. If share capital is contributed in the form of tangible goods, industrial property, non-patented technology or land use rights, they must be appraised and the property rights therein must be verified, whereupon the value thereof shall be converted into shares. The contributed items may not be overvalued or undervalued. The appraisal of land use rights shall be carried out in accordance with the provisions of the relevant national statutes and administrative regulations.

The value of the industrial property and non-patented technology contributed as share capital by the sponsors shall not exceed 20 percent of the total registered capital.

Article 81 In the case of reorganizing a state-owned enterprise into a joint stock limited company, conversion of state assets into shares through under-valuation, sale of state assets at low price, or distribution of state assets to individuals without compensation are strictly prohibited.

Article 82 In the case of establishing a joint stock limited company by sponsorship, upon the sponsors’ full subscription in writing for the shares to be issued as prescribed in the articles of association, the sponsors shall promptly pay the share proceeds in full; where tangible goods, industrial property, non-patented technology or land use rights are contributed in lieu of money, the property rights therein shall be transferred in accordance with legally prescribed procedures.

Upon full contribution of the share capital which the sponsors have subscribed for, they shall elect members to the board of directors and the board of supervisors, and the board of directors shall apply for establishment registration by submitting the document approving the establishment of the company, the articles of association, and the capital verification certificate, etc. to the company registration authority.

Article 83 In the case of establishing a joint stock limited company by public share offer, the shares subscribed for by the sponsors shall be not less than 35 percent of the total number of shares of the company, and the remaining shares shall be openly offered to the public.

Article 84 In offering shares to the public, the sponsors shall deliver an application for public share offer to the securities regulatory authority under the State Council, and submit thereto the following main documents:

(i) the document approving the establishment of the company;

(ii) the articles of association;

(iii) the operating forecast report;

(iv) the names of the sponsors, the number of shares they have subscribed for, the nature of their share capital contribution, and the capital verification certificate;

(v) the prospectus;

(vi) the name and address of the depository bank for the share proceeds;

(vii) the name of the underwriter and related agreements.

Without approval by the securities regulatory authority under the State Council, the sponsors my not offer shares to the public.

Article 85 Upon approval by the securities regulatory authority under the State Council, a joint stock limited company may offer shares to the public overseas, and the detailed procedure shall be specially prescribed by the State Council.

Article 86 The securities regulatory authority under the State Council shall approve an application for public share offer which meets the requirements prescribed herein; and shall not approve any application for public share offer which fails to meet the requirements prescribed herein.

If it is discovered that an approval given is not in compliance with the requirements prescribed herein, it shall be revoked. Where no share has been placed, such share offer shall be terminated; where shares have been placed, the subscribers may demand that the sponsors return the share proceeds paid, together with the interest thereon as if they have been deposited in a bank for a like period.

Article 87 The prospectus shall be accompanied with the articles of association prepared by the sponsors, and shall set forth the following:

(i) the number of shares subscribed for by the sponsors;

(ii) the par value and issuing price of each share;

(iii) the total number of bearer share certificates issued;

(iv) the rights and obligations of the subscribers;

(v) the commencing time and expiration time of the share offer, and a statement that in the event the shares have not be placed in full upon the expiration time, the subscribers may revoke their share subscriptions.

Article 88 In a public share offer, the sponsors shall make the prospectus available to the public and prepare the share subscription form. The share subscription form shall contain the items listed in the previous Article, and a subscriber shall fill in the following: the number of shares subscribed for, the amount of share proceeds, and his or her domicile, and shall sign or impress his chop on the form. A subscriber shall pay the share proceeds according to the number of shares he has subscribed for.

Article 89 The sponsors’ share offer to the public shall be underwritten by a securities underwriter established in accordance with the law, and an underwriting agreement shall be executed.

Article 90 When conducting public share offer, the sponsors shall execute an agreement with a bank for deposit of share proceeds.

The depository bank shall collect and hold the share proceeds in accordance with the agreement, and issue receipts to subscribers who have paid their share proceeds, and is obligated to provide to the relevant authority a certificate for receipt of share proceeds.

Article 91 After the proceeds from issue of the shares are paid in full, the share capital must be verified by a legally-prescribed capital verification institution and a certificate shall be issued thereby. Within 30 days, the sponsors shall hold and preside over the establishment meeting, which is composed of the subscribers.

If the issued shares are not fully placed upon expiration of the time limit prescribed in the prospectus, or the sponsors fail to hold the establishment meeting within 30 days of full payment of the proceeds from issue of the shares, the subscribers may demand that the sponsors return the share proceeds paid, together with the interest thereon as if they have been deposited in a bank for a like period.

Article 92 The sponsors shall notify each subscriber of the date of the establishment meeting or make a public announcement for such meeting 15 days in advance. The establishment meeting may not be held unless attended by subscribers representing at least half of the shares.

The establishment meeting shall exercise the following authorities:

(1) considering the report on pre-establishment activities prepared by the sponsors;

(2) adopting the articles of association;

(3) electing members of the board of directors;

(4) electing members of the board of supervisors;

(5) verifying expenses incurred for the establishment of the company;

(6) verifying the value of the assets contributed by the sponsors in lieu of share proceeds;

(7) where an event of force majeure or any material change in operating condition affecting the company’s establishment has occurred, a resolution not to establish the company may be adopted.

A resolution adopted at the establishment meeting on any of the matters mentioned in the previous Paragraph requires affirmative votes by subscribers representing at least half of the votes attending the meeting.

Article 93 Upon payment of the share proceeds or delivery of the items as contribution of share capital in lieu of share proceeds, the sponsors and subscribers may not withdraw their share capital, except where the shares issued are not fully placed in time, the sponsors fail to hold the establishment meeting in time, or the establishment meeting adopts a resolution not to establish the company.

Article 94 Within 30 days of the completion of the establishment meeting, the board of directors shall apply for establishment registration by submitting to the company registration authority the following:

(i) the approval document issued by the relevant authority;

(ii) the minutes of the establishment meeting;

(iii) the articles of association;

(iv) the financial auditing report on pre-establishment activities;

(v) the capital verification certificate;

(vi) the names and domiciles of members of the board of directors and the board of supervisors;

(vii) the name and domicile of the legal representative.

Article 95 The company registration authority shall decide whether to grant registration to the joint stock limited company within 30 days of receipt of the application for establishment registration. Where the application meets the requirements prescribed herein, registration shall be granted and the company shall be issued a business license; where the application fails to meet the requirements prescribed herein, registration shall not be granted.

The date on which the business license is issued shall be the date of the company’s establishment. Upon establishment, the company shall make a public announcement.

If established through public share offer, upon establishment and registration, the joint stock limited company shall submit to the securities regulatory authority under the State Council a report on the share offer activities for filing.

Article 96 Where a branch company is to be established contemporaneous with the establishment of a joint stock limited company, an application for registration of such branch company shall be submitted to the company registration authority, and it shall be issued a business license.

Where a branch company is to be established after the joint stock limited company’s establishment, the company’s legal representative shall apply to the company registration authority for registration of such branch company, and it shall be issued a business license.

Article 97 The sponsors of a joint stock limited company shall bear liabilities as follows:

(i) in the event of failure to establish the company, being jointly and severally liable for the debts and expenses incurred as a result of the pre-establishment activities;

(ii) in the event of failure to establish the company, being jointly and severally liable for the return of share proceeds paid by the subscribers, together with the interest thereon as if they have been deposited in a bank for a like period.

(iii) if the company’s interest is harmed in the course of its establishment due to the negligence of the sponsors, being liable to the company for damages.

Article 98 Where a limited liability company is to be converted into a joint stock limited company, the requirements for establishing a joint stock limited company prescribed herein shall be met, and the conversion shall be carried out in accordance with the procedure for the establishment of a joint stock limited company prescribed herein.

Article 99 Where conversion of a limited liability company to a joint stock limited company is approved in accordance with the law, the total value of the converted shares shall be equivalent to the company’s net assets value. Where conversion of a limited liability company to a joint stock limited company is approved in accordance with the law, and its shares are offered to the public for the purpose of increasing capital, such share offer shall be carried out in accordance with the provisions herein governing public share offer.

Article 100 Where conversion of a limited liability company to a joint stock limited company is approved in accordance with the law, the creditor’s rights and liabilities of the original company shall be assumed by the joint stock limited company resulting from the conversion.

Article 101 A joint stock limited company shall maintain its articles of association, the record of shareholders, the minutes of meetings of shareholders’ general committee, and its financial and accounting reports on the company’s premises.

Section Two Shareholders’ General Committee

Article 102 The shareholders’ General Committee of a joint stock limited company is composed of all shareholders. The shareholders’ general committee is the company’s organ of authority, and shall exercise its authorities in accordance herewith.

Article 103 The shareholder’s general committee shall exercise the following authorities:

(i) determining the company’s operational guidelines and investment plans;

(ii) electing and replacing members of the board of directors, and deciding upon matters relating to their remuneration;

(iii) electing and replacing members of the board of supervisors who are the shareholders’ representatives, and deciding upon matters relating to the remuneration of the supervisors;

(iv) considering and approving reports by the board of directors;

(v) considering and approving reports by the board of supervisors;

(vi) considering and approving annual financial budget plans and final accounting plans of the company;

(vii) considering and approving profit distribution plans and plans to cover company losses;

(viii) adopting resolutions regarding increase or reduction of registered capital by the company;

(ix) adopting resolutions on the issue of bonds by the company;

(x) adopting resolutions on merger, division, change of corporate form, dissolution and liquidation of the company;

(xi) amending the articles of association.

Article 104 The shareholders’ general committee shall hold an annual meeting each year. An interim meeting of the shareholders’ general committee shall be held within 2 months upon the occurrence of any of the following circumstances:

(i) The number of directors falls below the number prescribed herein or below two-thirds of the number prescribed in the articles of association;

(ii) The company’s losses which are not covered have reached one-third of the total amount of the share capital;

(iii) Shareholders holding at least 10 percent of the company’s stocks make a request;

(iv) The board of directors deems necessary;

(v) The board of supervisors proposes for such a meeting.

Article 105 A meeting of shareholders general committee shall be called by the board of directors in accordance with herewith, and shall be presided over by the chairman of the board. Where the chairman is unable to perform his duties due to any special reason, the meeting shall be presided over by the vice-chairman appointed by the chairman or another director appointed by the chairman. In order to hold a meeting of shareholders’ general committee, notice concerning the matters to be considered at the meeting shall be given to each shareholder 30 days in advance. An interim meeting of shareholders’ general committee may not adopt any resolution on matters not stated in the notice.

Where the company has issued bearer share certificates, a public notice concerning matters set forth in the previous Paragraph shall be made 45 days prior to the meeting.

When attending a meeting of shareholders’ general committee, holders of bearer share certificates shall deposit such certificates at the company from the 5th day prior to the meeting until the closing of the meeting.

Article 106 When a shareholder attends the meeting of shareholders’ general committee, each share he holds is entitled to one vote.

A resolution adopted by the shareholders’ general committee requires affirmative votes by a majority of the votes held by shareholders attending the meeting. The shareholders’ general committee’s adoption of a resolution for merger, division or dissolution of the company requires affirmative votes by at least two-thirds of the votes held by shareholders attending the meeting.

Article 107 An amendment to the articles of association requires affirmative votes by at least two-thirds of the votes held by shareholders attending the meeting of shareholders’ general committee.

Article 108 A shareholder may attend a meeting of shareholders’ general committee by proxy, the proxy holder shall present the proxy statement issued by the shareholder to the company, and shall exercise his voting rights to the extent authorized by the proxy.

Article 109 The shareholders’ general committee shall prepare minutes regarding the decisions on matters considered at the meeting, which shall be signed by the directors attending the meeting. The minutes shall be maintained together with the record containing signatures of the shareholders attending the meeting and the proxy statements.

Article 110 A shareholder is entitled to inspect the articles of association, the minutes of meetings of shareholders’ general committee and the financial and accounting reports of the company, and is entitled to make a proposal or inquiry concerning the company’s operation.

Article 111 Where a resolution adopted by the shareholders’ general committee or the board of directors violates the relevant national statutes or administrative regulations, or infringes on the rights and interests of the shareholders, a shareholder is entitled to bring a suit to the People’s Court to enjoin such illegal act or infringing act.

Section Three Board Of Directors And General Manager

Article 112 A joint stock limited company shall have a board of directors, which shall be composed of not fewer than 5 but not more than 19 members.

The board of directors is accountable to the shareholders’ general committee, and shall exercise the following authorities:

(i) being responsible for calling meetings of shareholders’ general committee, and presenting reports thereto;

(ii) implementing resolutions adopted by the shareholders’ general committee;

(iii) determining the company’s operating plans and investment programs;

(iv) preparing annual financial budget plans and final accounting plans of the company;

(v) preparing the company’s profit distribution plans and plans to cover company losses;

(vi) preparing plans for increasing or reducing registered capital by the company, and plans to issue company bonds;

(vii) drafting plans for merger, division or dissolution of the company;

(viii) determining the structure of the company’s internal management;

(ix) appointing or removing the general manager of the company; appointing or removing, upon the general manager’s recommendation, deputy general managers of the company and the officer in charge of finance; and determining the remuneration for those officers;

(x) formulating the company’s basic management scheme.

Article 113 The board of directors shall have a chairman, and may have one or two vice-chairmen. The chairman and vice-chairman shall be elected by the board of directors through affirmative votes by a majority of the directors.

The chairman is the legal representative of the company.

Article 114 The chairman shall exercise the following authorities:

(i) presiding over meetings of shareholders’ general committee, and calling and presiding over meetings of the board of directors;

(ii) supervising the implementation of resolutions adopted by the board of directors;

(iii) signing the share certificates and bond certificates of the company.

The vice-chairman shall assist the chairman in his work. Where the chairman is unable to exercise his authorities, the vice-chairman appointed by the chairman shall exercise such authorities in his capacity.

Article 115 The term of directors shall be prescribed by the articles of association, provided that each term shall not exceed 3 years. A director may continue to serve his post if he is re-elected upon the expiration of his term.

Prior to the expiration of a director’s term, the shareholders’ general committee may not remove him without cause.

Article 116 The board of directors shall hold meetings at least twice a year, and notice shall be given to all directors 10 days in advance.

Where an interim meeting of the board of directors is to be held, the method and time limit for notification for calling the interim meeting may be prescribed separately.

Article 117 A meeting of the board of directors may not be held unless attended by at least half of the directors. A resolution adopted by the board of directors requires affirmative votes by a majority of all the directors.

Article 118 A meeting of the board of directors shall be attended by each director in person. Where a director is unable to attend the meeting for cause, he may issue a written proxy entrusting another director to attend in his behalf, and the proxy shall set forth the scope of authorization.

The board of directors shall prepare minutes regarding the decisions on matters considered at the meeting, which shall be signed by the directors attending the meeting and the person preparing the minutes.

The directors shall be responsible for resolutions adopted by the board of directors. Where a resolution of the board violates any national statutes, administrative regulations or the articles of association, and causes the company to incur serious loss, those directors participating in the adoption of the resolution are liable to the company for damages. Provided, however, if a director is proven to have dissented at the vote adopting such resolution and such dissension was noted in the minutes, then the director may be exempt from liability.

Article 119 A joint stock limited company shall have a general manager, to be appointed or removed by the board. The general manager is accountable to the board and shall exercise the following authorities:

(i) being in charge of managing the company’s production and operation, and organizing the implementation of resolutions adopted by the board;

(ii) organizing the implementation of annual operating plans and investment programs of the company;

(iii) drafting the plan for the structure of the company’s internal management;

(iv) drafting the basic management scheme of the company;

(v) formulating detailed rules of the company;

(vi) recommending for appointment or removal of the deputy general managers and the officer in charge of finance;

(vii) appointing and removing officers of the company other than those to be appointed or removed by the board;

(viii) other authorities prescribed by the articles of association and delegated by the board.

The general manager shall be present at board meetings.

Article 120 In light of the needs of the company, the board of directors may authorize the chairman to exercise part of the authorities of the board when it is not in session.

The board of directors of the company may decide that a board member is to serve concurrently as the general manager.

Article 121 When a company considers and decides upon matters which affect the personal interests of its workers, such as workers’ wages, benefits, production safety and labor protection, or labor insurance, it shall first hear the opinions of the labor union and the workers of the company, and invite representatives of the labor union or the workers to be present at related meetings.

Article 122 When a company considers and decides upon major matters relating to its production and operation, or formulates important rules and standards, it shall hear the opinions and suggestions of the labor union and the workers.

Article 123 The directors and the general manager shall abide by the articles of association, faithfully perform their duties, and safeguard the interests of the company, and may not abuse their positions and authorities at the company for private gain.

The provisions from Article 57 to Article 63 hereof setting forth the circumstances in which a person may not serve as a director or the general manager, and the obligations and responsibilities of the directors and the general manager shall apply to the directors and general manager of a joint stock limited company.

Section Four Board Of Supervisors

Article 124 A joint stock limited company shall have a board of supervisors, which shall be composed of not fewer than 3 members. The board of supervisors shall elect one member to serve as the person responsible for calling meetings.

The board of supervisors shall be composed of the shareholders’ representative(s) and representative(s) of the workers of the company in an appropriate ratio to be prescribed by the articles of association. The workers’ representative(s) on the board of supervisors shall be democratically elected by the workers of the company.

A director, the general manager and the officer in charge of finance may not serve concurrently as a supervisor.

Article 125 Each term of a supervisor shall be three years, and a supervisor may continue to serve his post at the expiration of his term if he is re-elected.

Article 126 The board of supervisors shall exercise the following authorities:

(i) reviewing the financial affairs of the company;

(ii) monitoring the acts of the directors or the general manager to guard against violation of national statutes, administrative regulations or the articles of association in the course their performance of duties;

(iii) requiring the directors or the general manager to make rectification when any act thereof harms company interests;

(iv) proposing for interim meetings of shareholders’ general committee.

(v) other authorities prescribed by the articles of association.

The supervisors shall be present at board meetings.

Article 127 The method for conducting business and voting procedure for the board of supervisors shall be prescribed by the articles of association.

Article 128 A supervisor shall perform his supervisory duties faithfully in accordance with the provisions of national statutes, administrative regulations, and the articles of association.

The provisions from Article 57 to Article 59 hereof and from Article 62 to Article 63 hereof setting forth the circumstances in which a person may not serve as a supervisor, and the obligations and responsibilities of supervisors shall apply to the supervisors of a joint stock limited company.

Chapter Four: Issue And Transfer Of Shares Of A Joint Stock Limited Company

Section One Issue Of Shares

Article 129 The capital of a joint stock limited company shall be divided into shares, and all the shares shall be of equal value.

Shares of the company are represented by share certificates. A share certificate is a certificate issued by the company certifying the share held by a shareholder.

Article 130 When shares are issued, the principles of openness, fairness, and equity shall be followed, and each share in the same class must have the same rights and receive the same interests.

For shares issued at the same time, each share shall be issued on the same conditions and at the same price. All entities or individuals subscribing for shares shall pay the same price for each share.

Article 131 The issuing price per share may be at par value, or above par value, but may not be below par value.

The pricing of shares issued at above par value is subject to approval by the securities regulatory authority under the State Council.

The premium resulting from issuance of shares at a price above par value shall be allocated to the company’s capital reserve fund.

The detailed regulatory measures concerning issuance of shares at a premium shall be prescribed by the State Council separately.

Article 132 A share certificate shall be in paper form or in other forms prescribed by the securities regulatory authority under the State Council.

A share certificate shall set forth the following major items:

(i) the name of the company;

(ii) the company’s date of registration and establishment;

(iii) the class and par value of the shares and the number of shares represented;

(iv) the serial number of the share certificate.

The share certificate shall be signed by the chairman of the board, and the company’s chop shall be impressed thereon.

Share certificates held by the sponsors shall be marked with the words Sponsors’ Share.

Article 133 Share certificates issued by the company to its sponsors, state authorized investment institutions, or legal persons shall be registered share certificates bearing the names of such sponsors, institutions, or legal persons, and may not be registered under any other names or in the names of their legal representatives.

Share certificates issued to the public may be in the form of either registered share certificates or bearer share certificates.

Article 134 A company issuing registered share certificates shall maintain a record of shareholders, which shall set forth the following:

(i) the name and domicile of each shareholder;

(ii) the number of shares held by each shareholder;

(iii) the serial numbers of share certificates held by each shareholder;

(iv) the date on which each shareholder acquired his shares.

A company issuing bearer share certificates shall record the number of such share certificates, their serial numbers and their issuing dates.

Article 135 The State Council may make separate stipulations relating to a company’s issuance of shares of classes other than those prescribed herein.

Article 136 Upon registration and establishment, a joint stock limited company shall promptly deliver the share certificates to its shareholders officially. Prior to registration and establishment, the company may not deliver any share certificate to its shareholders.

Article 137 Issuance of new shares by a company is subject to the following conditions:

(i) Previously issued shares have been fully subscribed for, and at least one year has passed since the previous share issue;

(ii) The company has been profitable consecutively for the most recent three years, and is able to pay dividends to its shareholders;

(iii) The financial and accounting documents of the company contain no misrepresentation for the most recent three years;

(iv) the company’s projected profit rate reaches the interest rate of bank deposits for a like period.

Where the company distributes its current year profit in the form of new shares, issuance of such shares are exempt from the restriction prescribed in Item (ii) of the previous Paragraph.

Article 138 Where a company is to issue new shares, the shareholder’s general committee shall adopt a resolution concerning the following:

(i) the classes and number of the new shares;

(ii) the issuing price of the new shares;

(iii) the commencing and ending dates of issuance of the new shares;

(iv) the classes and number of new shares issued to the existing shareholders.

Article 139 Upon adoption of a resolution by the shareholders’ general committee to issue new shares, the board of directors shall apply to the department authorized by the State Council or the People’s Government at the provincial level for approval. Where the new shares are offered to the public, approval by the securities regulatory authority is required.

Article 140 When a company is approved to issue new shares to the public, it shall make public the prospectus for the issue of new shares, its financial and accounting statements and subsidiary statements, and shall prepare the subscription form.

If the company offers new shares to the public, such share offer shall be underwritten by a lawfully established securities underwriter, and the company shall execute an underwriting agreement therewith.

Article 141 In issuing new shares, a company may determine the pricing scheme in light of the sustainable profitability of the company and the appreciation of the company’s assets.

Article 142 Upon full receipt of the share proceeds from the company’s newly issued shares, the company shall carry out amendment registration with the company registration authority and shall make a public announcement.

Section Two Assignment Of Shares

Article 143 Shares held by a shareholder may be assigned in accordance with the law.

Article 144 Assignment of shares by a shareholder must be carried out at a lawfully established securities exchange.

Article 145 Assignment of registered share certificates is effected by the shareholder’s endorsement thereof or by other methods prescribed by the relevant national statutes or administrative regulations.

In the case of assignment of registered share certificates, the company shall record the assignee’s name and domicile on the record of shareholders.

Recording change of shareholders on the record of shareholders referred to in the previous Paragraph may not be carried out for a period of 30 days prior to the holding of a meeting of shareholders’ general committee, or 5 days prior to the record date for the purpose of dividend distribution determined by the company.

Article 146 Assignment of bearer share certificates takes effect upon delivery thereof by the shareholder to the assignee at a lawfully established securities exchange.

Article 147 Shares of a company held by its sponsors may not be assigned for a period of 3 years commencing from the date of the company’s establishment.

The directors, supervisors and general manager of the company shall report to the company the number of the company’s shares held thereby, and may not assign such shares while they are in office.

Article 148 A state authorized investment institution may assign shares held by it in accordance with the law, and may also purchase shares held by other shareholders. The authority of approval for, and regulatory measures concerning, such assignment or purchase of shares shall be separately prescribed by the relevant national statutes or administrative regulations.

Article 149 A company may not purchase its own shares, except in the case of share cancellation for the purpose of reducing the company’s capital, or in the case of merger with another company holding shares of the company.

Upon repurchase of its shares pursuant to the previous Paragraph, the company shall cancel such shares within 10 days, and carry out amendment registration in accordance with the relevant national statutes or administrative regulations, and shall make a public announcement.

The company may not accept its own shares as the collateral under a security arrangement.

Article 150 If a registered share certificate is stolen, lost or destroyed, the shareholder may petition a People’s Court for the invalidation thereof through the public notice procedure prescribed in the Civil Procedural Law of the People’s Republic of China.

After the People’s Court has invalidated such share certificate through the public notice procedure, the shareholder may apply to the company for re-issuance of a certificate for the share.

Section Three Listed Companies

Article 151 A Listed company referred to herein means a joint stock limited company whose issued shares have been approved by the State Council or the securities regulatory authority authorized by the State Council to be listed and traded on a securities exchange.

Article 152 A joint stock limited company applying for listing of its shares shall meet the following requirements:

(i) The company’s shares have been issued to the public with approval by the securities regulatory authority under the State Council;

(ii) The amount of total share capital of the company is at least Renminbi 50,000,000 Yuan;

(iii) The company has been in operation for at least three years, and has been profitable consecutively for the most recent three years; where the company is reorganized from a former state-owned enterprise in accordance with the law, or newly established after the implementation hereof, with its principal sponsor being a large-scaled or medium-scaled state-owned enterprise, the required period may be counted continuously;

(iv) There are at least 1,000 shareholders each of whom holds shares with face value of not less than Renminbi 1,000 Yuan, and the shares issued to the public amount to at least 25 percent of the total number of shares of the company; and where the amount of total share capital of the company exceeds Renminbi 400,000,000 Yuan, the shares issued to the public amount to at least 15 percent of the total number of shares of the company;

(v) The company has not engaged in any material illegal act for the most recent three consecutive years, and the financial and accounting reports thereof contain no misrepresentation;

(vi) other requirements prescribed by the State Council.

Article 153 The application by a joint stock limited company for listing of its shares shall be submitted to the State Council or the securities regulatory authority authorized thereby for approval, and the relevant documents shall be submitted in accordance with the applicable national statutes and administrations regulations.

The State Council or the securities regulatory authority authorized thereby shall approve an application for listing of shares which meets the requirements prescribed herein; and shall not approve any application which fails to meet the requirements prescribed herein.

Upon approval of its application for listing of shares, the company approved for listing shall make public its share listing report, and shall maintain its application documents at a designated place for inspection by the public.

Article 154 The shares of a company approved for listing shall be listed in accordance with the provisions of applicable national statutes and administrative regulations.

Article 155 Upon approval by the securities regulatory authority under the State Council, the shares of a company may be listed abroad, and the detailed measures shall be specially prescribed by the State Council.

Article 156 A listed company shall make public its financial conditions and operating conditions at regular intervals in accordance with the relevant national statutes and administrative regulations, and shall make public its financial and accounting reports semiannually in each fiscal year.

Article 157 The securities regulatory authority under the State Council shall suspend the trading of a listed company in any of the following circumstances:

(i) Matters such as the total share capital or the composition of equity ownership of the company have changed so that the company no longer meets the requirements for listing;

(ii) The company fails to make public its financial condition as required, or has made misrepresentations in its financial and accounting reports;

(iii) The company has engaged in material illegal act;

(iv) The company has been suffering losses for the most recent three consecutive years.

Article 158 Where a listed company is in a circumstance set forth in either Item (ii) or (iii) of the previous Article, and after investigation, it is confirmed that the circumstance is serious, or the listed company is in a circumstance set forth in either Item (i) or (iv) and has not been able to eliminate such circumstance within a prescribed time limit, and hence no longer meets the requirements for listing, the securities regulatory authority under the State Council shall issue a decision to de-list its shares.

Where the company is to be dissolved pursuant to a resolution, is ordered to cease its operation by the relevant authority in charge in accordance with the law, or is declared bankrupt, the securities regulatory authority under the State Council shall issue a decision to de-list its shares.

Chapter Five: Company Bonds

Article 159 For the purpose of financing production and operation, a joint stock limited company, a wholly state-owned company or a limited liability company established through investment by two or more state-owned enterprises or two or more state authorized investment entities may issue company bonds in accordance herewith.

Article 160 Company bonds referred to herein means a form of security which is issued by a company in accordance with legally prescribed procedure, and which provides that the principal thereof and interest thereon shall be paid at specified times.

Article 161 In order to issue company bonds, the following requirements must be met:

(i) The net assets of the company shall be not less than Renminbi 30,000,000 Yuan in the case of a joint stock limited company, and not less than Renminbi 60,000,000 Yuan in the case of a limited liability company;

(ii) The cumulative value of company bonds shall not exceed 40 percent of the company’s net assets;

(iii) The average distributable profit for the most recent three years is sufficient to pay one year’s interest on the company bonds;

(iv) The proceeds received shall be invested in a manner consistent with state industrial policy;

(v) The interest rate on the bonds shall not exceed the level of interest rate set by the State Council;

(vi) Other requirements prescribed by the State Council.

The proceeds from issuance of company bonds shall be used for the purpose approved by the approval authority, and may not be used to cover losses and non-operating expenditures.

Article 162 No additional company bonds may be issued in any of the following circumstances:

(i) Company bonds previously issued have not been fully subscribed for;

(ii) The fact that the company is in default of any of the previously issued company bonds or company debt or is late in payment of principal and interest has occurred, and is currently existing.

Article 163 Where a joint stock limited company or limited liability company is to issue company bonds, its board of directors shall prepare a plan and the shareholders’ committee shall adopt a resolution on such matter.

Where a wholly state-owned company is to issue company bonds, the decision shall be made by the state authorized investment entity or state authorized department.

After a resolution has been adopted or a decision has been made pursuant to the previous two Paragraphs, the company shall apply to the securities regulatory authority under the State Council for approval.

Article 164 The overall volume of company bonds issue shall be determined by the State Council. In examining and approving application for company bonds issue, the securities regulatory authority under the State Council may not extend its approval beyond the volume set by the State Council.

The securities regulatory authority under the State Council shall approve an application for company bonds issue which complies with the provisions hereof, and shall not approve an application which fails to comply with the provisions hereof.

Where it has been discovered that an approval given for company bonds issue is not in compliance with the provisions hereof, such approval shall be revoked. If the company bonds have not been issued, the issue shall be terminated; if the company bonds have been issued, the issuing company shall return the proceeds paid by the subscribers together with the interest thereon as if they have been deposited in a bank for a like period.

Article 165 For an application to the securities regulatory authority under the State Council for company bonds issue, the following documents shall be submitted:

(i) the company’s registration certificate;

(ii) the articles of association of the company;

(iii) the plan for company bonds offer;

(iv) the assets appraisal report and capital verification report.

Article 166 Upon approval of an application for company bonds issue, the plan for company bonds offer shall be made public.

The plan for company bonds offer shall set forth the following major items:

(i) the name of the company;

(ii) the total value of the bonds and the par value of each bond;

(iii) the rate of interest on the bonds;

(iv) the time limit and method for payment of the principal of and interest on the bonds;

(v) the commencing and ending date of the bonds issue;

(vi) the net assets value of the company;

(vii) the total value of issued and outstanding company bonds;

(viii) the underwriter of the company bonds.

Article 167 In the case of company bonds issue, a company must state on each bond certificate the name of the company, the par value of the bond, interest rate, and repayment period, and the bond certificate shall be signed by the chairman of the board, and the company’s chop shall be impressed thereon.

Article 168 company bonds may be classified as either registered bonds or bearer bonds.

Article 169 If a company has issued bonds, it shall maintain a record of bondholders.

If registered bonds are issued, the following shall be recorded on the company’s record of bondholders:

(i) the name and domicile of each bondholder;

(ii) the dates on which the bondholders acquired the bonds and the serial numbers of the bond certificates;

(iii) the total value of the bonds, the par value of each bond, the interest thereon, the term thereof and method for payment of principal and interest;

(iv) the date of issue of the bonds.

If bearer company bonds are issued, the company’s record of bondholders shall record the total value of such bonds, the interest rate thereon, the term thereof and the method for repayment, and the date of issue and the serial numbers of the bond certificates.

Article 170 Company bonds may be assigned. Assignment of company bonds shall be carried out at a lawfully established securities exchange.

The assignment price of company bonds shall be agreed upon between the assignor and the assignee.

Article 171 Assignment of registered bonds is effected by the bondholder’s endorsement of the bonds or by other methods prescribed by the relevant national statutes or administrative regulations.

In the case of assignment of registered bonds, the company shall record the assignee’s name and domicile on the record of bondholders.

Assignment of bearer bonds takes effect upon delivery thereof by the bondholder to the assignee at a lawfully established securities exchange.

Article 172 Upon adoption of a resolution by the shareholders’ general committee, a listed company may issue bonds which are convertible to its shares, and it shall prescribe the specific method for such conversion in the plan for company bonds offer.

In order to issue convertible company bonds, an application shall be submitted to the securities regulatory authority under the State Council for approval. In order to issue convertible company bonds, in addition to meeting the requirements for issue of bonds, the company shall also meet the requirements for issue of shares.

In the case of issue of convertible company bonds, the face of the bond certificate shall be marked with the word “Convertible,” and the number of convertible company bonds shall be specified in the company’s record of bondholders.

Article 173 Where convertible company bonds are issued, the company shall exchange its shares for the bonds held by the bondholders using the prescribed method of conversion, provided that the bondholders have the option on whether or not to convert their bonds.

Chapter Six: Financial And Accounting Affairs Of Company

Article 174 A company shall establish its financial and accounting system in accordance with the relevant national statutes, administrative regulations and the stipulations of the finance authority under the State Council.

Article 175 A company shall prepare its financial and accounting reports at the end of each fiscal year, which shall be reviewed and verified in accordance with the law.

The financial and accounting reports shall include the following financial and accounting statements and subsidiary statements:

(i) balance sheet;

(ii) income statement;

(iii) statement of cash flow;

(iv) explanation of financial conditions;

(v) statement of profit distribution;

Article 176 A limited liability company shall deliver its financial and accounting reports to each shareholder within the time limit prescribed by the articles of association.

The financial and accounting reports of a joint stock limited company shall be available at the company’s premises for shareholders’ inspection as from the 20th day prior to the annual meeting of shareholders’ general committee.

A joint stock limited company established through public share offer shall make public its financial and accounting reports.

Article 177 In distribution of its current year after-tax profit, a company shall allocate 10 percent to its statutory reserve fund, 5 to 10 percent to its statutory welfare fund. Allocation to the company’s statutory reserve fund may be waived once the cumulative amount of funds therein exceeds 50 percent of the company’s registered capital.

Where the statutory reserve fund is not sufficient to cover the company’s loss from the previous year, the current year profit shall be used to cover such loss before allocation is made to the statutory reserve fund and the statutory welfare fund pursuant to the previous Paragraph.

After allocation to the statutory reserve fund has been made from the after-tax profit of the company, and upon adoption of a resolution by the shareholders’ committee, allocation may be made to the discretionary reserve fund.

After the company has covered its losses, and made allocation to the reserve funds and statutory welfare fund, the remainder of the profit shall be distributed to the shareholders in proportion to their capital contribution in the case of a limited liability company, and in proportion to their share holdings in the case of a joint stock limited company.

If the shareholders’ committee or the board of directors, in violation of the previous Paragraph, distributes profit to the shareholders before covering company losses and making allocation to company statutory reserve fund and statutory welfare fund, the profit so distributed must be returned to the company.

Article 178 The premium received by a joint stock limited company through issuance of shares at prices above par value in accordance herewith, as well as other incomes to be allocated to the capital reserve fund as stipulated by the finance authority under the State Council, shall be allocated to the capital reserve fund.

Article 179 The reserve funds of the company shall be used to cover company losses, expand its production and operation, or be converted to the company’s increased capital.

Where a joint stock limited company, upon adoption of a resolution by the shareholders’ general committee, is to convert the reserve funds into company capital, new shares shall be distributed to the shareholders in proportion to their original share holdings, or the par value of each share shall be increased. Provided, however, upon conversion of statutory reserve fund into capital, the amount remaining in the statutory reserve fund may not fall below 25 percent of the registered capital.

Article 180 The statutory welfare fund allocated by the company shall be used for the collective welfare of the workers thereof.

Article 181 The company may not establish any separate accounting book besides the accounting books prescribed by law. The company’s assets may not be deposited into any account established under an individual’s name.

Chapter Seven: Merger And Division Of Company

Article 182 If a company is to undergo merger or division, its shareholders’ committee shall adopt a resolution.

Article 183 The merger or division of a joint stock limited company is subject to approval by the department authorized by the State Council or the People’s Government at the provincial level.

Article 184 Companies may be merged in two forms, i.e. merger by absorption and merger by consolidation.

One company absorbing another company is merger by absorption, and the company being absorbed shall be dissolved. Merger of two or more Companies through establishment of a new company is a consolidation, and the companies being consolidated shall be dissolved.

In a merger of companies, the companies shall execute a merger agreement, and prepare their respective balance sheets and schedules of assets. The companies shall notify their creditors within 10 days of adoption of merger resolutions, and shall publish a notice at least 3 times in a newspaper within 30 days. Creditors are entitled to claim full payment of the debts of the companies or require the provision of appropriate assurances within 30 days of receipt of the notice, or within 90 days of publication of the first notice if such creditors did not receive the notice. The companies may not be merged unless debts are fully paid or appropriate assurances are provided.

Once the companies are merged, the creditor’s rights and debtor’s liabilities of the merged companies shall be assumed by the surviving company or the newly formed company after merger.

Article 185 Where a company is to undergo division, its assets shall be divided accordingly.

In dividing the company, a balance sheet and a schedule of assets shall be prepared. The company shall notify its creditors within 10 days of adoption of a division resolution, and shall publish a notice at least 3 times in a newspaper within 30 days. Creditors are entitled to claim full payment of the company’s debts or require the provision of appropriate assurances within 30 days of receipt of the notice, or within 90 days of publication of the first notice if such creditors did not receive the notice. The company may not be divided unless debts are fully paid or appropriate assurances are provided.

The liabilities of the company prior to its division shall be assumed by the companies resulting from the division according to the agreement reached among them.

Article 186 Where a company needs to reduce its registered capital, a balance sheet and a schedule of assets must be prepared.

The company shall notify its creditors within 10 days of adoption of a resolution to reduce its registered capital, and shall publish a notice at least 3 times in a newspaper within 30 days. Creditors are entitled to claim full payment of the company’s debts or require the provision of appropriate assurances within 30 days of receipt of the notice, or within 90 days of publication of the first notice if such creditors did not receive the notice.

After capital reduction, the company’s registered capital may not fall below the statutory minimum capital level.

Article 187 When a limited liability company is to increase its registered capital, after subscription for the newly increased capital, the shareholders shall make capital contribution in accordance with the provisions hereof concerning capital contribution for the establishment of a limited liability company.

When a joint stock limited company is to issue new shares for the purpose of increasing its registered capital, the shareholders’ subscription for the new shares shall be carried out in accordance with the provisions hereof concerning payment of share proceeds for the establishment of a joint stock limited company.

Article 188 In the case of merger or division of a company, where any registered item requires change, amendment registration shall be carried out with the company registration authority in accordance with the law; where the company is dissolved, company de-registration shall be carried out in accordance with the law; where a new company is established, establishment registration shall be carried out in accordance with the law.

Where a company is to increase or reduce its registered capital, a amendment registration shall be carried out with the company registration authority in accordance with the law.

Chapter Eight: Bankruptcy, Dissolution And Liquidation Of Company

Article 189 Where a company is adjudged bankrupt in accordance with the law due to its failure to repay debts when due, the People’s Court shall organize the shareholders, the relevant authorities and professionals to establish a liquidating committee to carry out the company’s bankruptcy liquidation in accordance with the provisions of the applicable laws.

Article 190 A company may be dissolved in any of the following circumstances:

(i) the term of operation prescribed by the company’s articles of association has expired, or any other cause for dissolution prescribed by the company’s articles of association has occurred;

(ii) the shareholders’ committee has adopted a resolution for dissolution;

(iii) dissolution is required due to merger or division of the company.

Article 191 Where a company is to be dissolved pursuant to Item (i) or (ii) of the previous Article, a liquidating committee shall be formed within 15 days; the liquidating committee of a limited liability company shall be composed of its shareholders, and members of the liquidating committee of a joint stock limited company shall be determined by the shareholders’ general committee; where the company fails to form a liquidating committee to carry out liquidation within the prescribed time limit, its creditors may petition the People’s Court to appoint the relevant persons to form a liquidating committee to carry out liquidation. The People’s Court shall accept such petition, and promptly appoint members of the liquidating committee to carry out liquidation.

Article 192 Where the company is ordered to terminate due to its violation of law or administrative regulations, the company shall be dissolved, and the relevant department in charge shall organize the shareholders, the relevant authority and related professionals to form a liquidating committee to carry out liquidation.

Article 193 The liquidating committee shall exercise the following authorities in the course of liquidation:

(i) identifying the company’s assets, and preparing a balance sheet and a schedule of assets respectively;

(ii) notifying creditors through notice or public announcement;

(iii) handling the company’s ongoing businesses which are related to liquidation;

(iv) making full payment of taxes owed;

(v) identifying the company’s creditor’s rights and debtor’s liabilities;

(vi) disposing of the remaining assets after full payment of company debts;

(vii) participating in civil actions on behalf of the company.

Article 194 The liquidating committee shall notify creditors within 10 days of its establishment, and shall make a public announcement in a newspaper at least 3 times within 60 days. Creditors shall file their creditor’s rights with the liquidating committee within 30 days of receipt of the notice, and within 90 days of publication of the first notice if such creditors did not receive the notice.

In filing for creditor’s rights, the creditors shall state the relevant matters relating to the creditor’s rights, and provide supporting materials. The liquidating committee shall record such creditor’s rights.

Article 195 After identifying the company’s assets and preparing the balance sheet and schedule of assets, the liquidating committee shall prepare a liquidating plan, which shall be submitted to the shareholders’ committee or the relevant authority for ratification.

Where the company’s assets are sufficient for payment of company debts, such assets shall be paid out in the following order: payment of liquidating expenses, payment of wages and expenses for labor insurance of the workers, payment of taxes owed, and payment of company debts.

After payments have been made in accordance with the previous Paragraph, the remaining assets shall be distributed to the shareholders in proportion to their shares of capital contribution in the case of a limited liability company, and in proportion to their share holdings in the case of a joint stock limited company.

In the course of liquidation, the company may not conduct new business. Before payments have been made in accordance with Paragraph 2 above, the assets of the company may not be distributed to the shareholders.

Article 196 Where a company commences liquidation due to its dissolution, and after identification of company assets and preparation of the balance sheet and schedule of assets, the liquidating committee discovers that the company does not have sufficient assets to fully repay company debts, the liquidating committee shall immediately file a bankruptcy application with the People’s Court.

Once the company is adjudged bankrupt by a ruling of the People’s Court, the liquidating committee shall transfer the liquidating affairs to the People’s Court.

Article 197 Upon completion of a company’s liquidation, the liquidating committee shall prepare a liquidating report, which shall be submitted to the shareholders’ committee or the relevant authority for ratification, and upon ratification, the liquidating committee shall submit such report to the company registration authority to apply for company de-registration, and make a public announcement of the company’s termination. Where the company fails to apply for company de-registration, the company registration authority shall revoke its business license and make a public announcement.

Article 198 Members of the liquidating committee shall faithfully perform their duties and carry out their liquidating obligations in accordance with the law.

Members of the liquidating committee may not abuse their authorities by accepting bribes or receiving other illegal income, and may not misappropriate company assets.

A committee member who causes loss to the company or its creditors due to his intentional misconduct or gross negligence shall be liable for damages.

Chapter Nine: Branch Of Foreign Company

Article 199 Foreign companies may establish branches within China to conduct business in accordance herewith.

A foreign company referred to herein means a company registered and established outside China under foreign laws.

Article 200 In order to establish a branch within China, a foreign company must submit an application to the Chinese authority in charge, together with the relevant documents such as its articles of association, the company registration certificate issued in its home country, etc. Upon approval, it shall carry out registration with the company registration authority and be issued a business license.

The examination and approval procedure for branches of foreign companies shall be separately prescribed by the State Council.

Article 201 In order to establish a branch within China, a foreign company must appoint a representative or agent in charge of such branch within China, and fund its branch as appropriate in light of the nature of its intended business.

Where operation of certain branches of foreign companies is subject to a minimum level of funding, such level shall be prescribed by the State Council separately.

Article 202 The branch of a foreign company shall identify the nationality and form of liability in its name.

The branch of a foreign company shall maintain the articles of association of such foreign company on its premises.

Article 203 A foreign company is a foreign legal person, and its branch established within China does not have the status of a Chinese legal person.

A foreign company shall bear civil liabilities in respect of the business conducted by its branch within China.

Article 204 While conducting business within China, the branch of a foreign company established after approval must abide by Chines law, and may not harm the public interest of China, and its lawful rights and interests are protected by Chinese law.

Article 205 When a foreign company cancels its branch within China, such company must fully repay the debts thereof in accordance with the law and carry out liquidation in accordance with the provisions hereof concerning company liquidation procedure. The company may not transfer the assets of such branch abroad prior to full repayment of its debts.

Chapter Ten: Legal Liabilities

Article 206 In the case of company registration, where an applicant obtains company registration in violation hereof by making false statement of registered capital, submitting false certificates or by concealing material facts through other fraudulent means, the company shall be ordered to make rectification, and in case false statement of registered capital was made, the company shall be fined not less than 5 percent but not more than 10 percent of the amount of registered capital falsely stated; the company submitting false certificates or concealing material facts shall be fined not less than 10,000 Yuan but not more than 100,000 Yuan; where the circumstances are serious, the company registration shall be revoked. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 207 In the case of issue of company shares or bonds, where the prospectus, subscription form, or plan for company bonds offer is falsely prepared, the issuing activities shall be ordered to cease, and an order shall be issued for the return of the proceeds received together with interest thereon, and a fine of not less than 1 percent but not more than 5 percent of the proceeds illegally received shall be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 208 In the case of capital contribution, where the sponsors or shareholders falsify capital contribution by failing to pay money, to deliver tangible goods or to transfer property rights, thus defrauding the creditors or the public, rectification shall be ordered, and such persons shall be fined not less than 5 percent but not more than 10 percent of the amount of capital contribution falsified. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 209 Where the sponsors or shareholders of a company withdraw their capital contribution after the establishment of the company, they shall be ordered to make rectification, and such persons shall be fined not less than 5 percent but not more than 10 percent of the amount of capital contribution withdrawn. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 210 Where a company issues company shares or bonds on its own without approval by the appropriate authorities provided for herein, the issuing activities shall be ordered to cease, and the proceeds received, together with interest thereon, shall be returned, and a fine of not less than 1 percent but not more than 5 percent of the proceeds illegally received shall be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 211 Where a company, in violation hereof, establishes another set of accounting books besides those prescribed by law, it shall be ordered to make rectification, and the company shall be fined not less than 10,000 Yuan but not more than 100,000 Yuan. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Where company assets are deposited into an account established under an individual’s name, the illegal gain shall be confiscated, and a fine of not less than 2 times but not more than 5 times of the illegal gain shall be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 212 Where a company provides to its shareholders and the public financial and accounting reports which are false or which conceal material facts, a fine of not less than 10,000 Yuan but not more than 100,000 Yuan shall be imposed on the supervisor directly in charge and the other person(s) directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 213 Where, in violation hereof, state-owned assets are converted into shares at low prices or sold to individuals at low prices, or distributed to individuals without compensation, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 214 Where the directors, supervisors, or the general manager abuse their authorities by accepting bribes or receiving other illegal income, or convert company assets, any such illegal gain shall be confiscated, and they shall be ordered to return the company assets and shall be disciplined by the company. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Where a director or the general manager misappropriates company funds or loan company funds to third parties, he shall be ordered to return the company funds and shall be disciplined by the company, and the income derived from such transaction shall be turned over to the company. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Where, in violation hereof, the directors or the general manager gives company assets as security for the personal debts of any director of the company or any other person, the security arrangement shall be ordered to be canceled, and such persons shall be held liable for damages in accordance with the law, and the income derived from the illegal provision of security shall be turned over to the company. Where the circumstance is serious, such persons shall be disciplined by the company.

Article 215 Where, in violation hereof, a director or the general manager engages in the same business as the company either for his own account or for another person’s account, in addition to turning over any income so derived to the company, such person may also be disciplined by the company.

Article 216 Where a company fails to make allocation to the statutory reserve fund and statutory welfare fund in accordance herewith, such company shall be ordered to make full allocation to the required funds, and a fine of not less than 10,000 Yuan but not more than 100,000 Yuan may be levied on the company.

Article 217 Where a company fails to notify creditors through notice or public announcement in accordance herewith while carrying out merger, division, reduction of registered capital, or liquidation, it shall be ordered to make rectification, and the company shall be fined not less than 10,000 Yuan but not more than 100,000 Yuan.

Where in the course of liquidation, the company conceals its assets, makes false statements in its balance sheet or schedule of assets, or distributes company assets prior to full repayment of company debts, it shall be ordered to make rectification, and the company shall be fined not less than 1 percent but not more than 5 percent of the value of the concealed assets, or the value of the assets distributed prior to full repayment of company debts. A fine of not less than 10,000 Yuan but not more than 100,000 Yuan shall be imposed on the supervisor directly in charge and the other person(s) directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 218 Where the liquidating committee fails to submit the liquidating report to the company registration authority in accordance herewith, or conceals any material fact or makes any material omission in the liquidating report submitted, it shall be ordered to make rectification.

Where a member of the liquidating committee abuses his authority to engage in fraudulent activity for private gain, to obtain illegal income or convert company assets, such member shall be ordered to return the company assets, and the illegal income shall be confiscated, and such member may be fined not less than 2 times but not more than 5 times the illegal income. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 219 Where an institution conducting assets appraisal, capital verification, or testing and verification provides a false certificate, the illegal income so derived shall be confiscated, and a fine of not less than 2 times but not more than 5 times the illegal income shall be imposed, and the relevant authority in charge may order such institution to cease operation, and revoke the qualification certificates of the persons directly responsible. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Where an institution conducting assets appraisal, capital verification or testing and verification provides a report with material omission due to its negligence, it shall be ordered to make rectification, and where the circumstance is relatively serious, a fine of not less than 2 times but not more than 3 times the income so derived shall be imposed, and the relevant authority in charge may order such institution to cease operation, and revoke the qualification certificates of the persons directly responsible.

Article 220 Where the relevant authority in charge authorized by the State Council approves an application for the establishment of a company which fails to meet the requirements prescribed herein, or approves an application for issue of shares which fails to meet the requirements prescribed herein, and the circumstance is serious, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 221 Where the securities regulatory authority under the State Council approves an application for share offer, share listing, or bonds issue which fails to meet the requirements prescribed herein, and the circumstance is serious, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 222 Where the company registration authority grants registration to an application which fails to meet the requirements prescribed herein, and the circumstance is serious, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 223 Where the department in charge of the company registration authority compels it to grant registration to an application which fails to meet the requirements prescribed herein, or engages in cover up for an illegal registration, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 224 Where an entity passes itself off as a limited liability company or joint stock limited company while not registered as such in accordance with the law, it shall be ordered to make rectification or such entity shall be closed down, and a fine of not less than 10,000 Yuan but not more than 100,000 Yuan may be imposed. Where such action constitutes a crime, criminal liability shall be imposed in accordance with the law.

Article 225 Where a company fails to commence operation for more than 6 months without proper cause, or suspends operation on its own without proper cause for more than 6 consecutive months after commencement of operation, the company registration authority shall revoke its company business license.

Where the company fails to carry out amendment registration in accordance herewith when a registered item of the company has changed, it shall be ordered to register within a prescribed time limit, and where the company has not carried out registration after expiration of the time limit, a fine of not less than 10,000 Yuan but not more than 100,000 Yuan shall be imposed.

Article 226 Where, in violation hereof, a foreign company establishes a branch within China without approval, it shall be ordered to make rectification, or such branch shall be ordered to terminate, and a fine of not less than 10,000 Yuan but not more than 100,000 Yuan may be imposed.

Article 227 Where a relevant authority performing approval function hereunder fails to approve an application which meets conditions prescribed by law, or the company registration authority fails to grant registration to an application which meets conditions prescribed by law, the affected party may apply for administrative review or institute an administrative action in accordance with the law.

Article 228 Where a company violates of this Law, and is therefore liable for civil damages as well as for an administrative fine or criminal fine, and its assets are not sufficient to cover both, its assets shall first be used to cover the civil liability for damages.

Chapter Eleven: Supplementary Provisions

Article 229 (Amended) Companies registered and established prior to the implementation of this Law, in accordance with law, administrative regulations, local regulations, and the Standard Opinions Concerning Limited Liability Companies and the Standard Opinions Concerning Joint Stock Limited Companies formulated by the relevant authority in charge under the State Council, shall remain in existence, provided that those companies which do not meet all the conditions prescribed herein shall meet such conditions within the time limit prescribed. Detailed implementing measures shall be formulated by the State Council separately.

In the case of a Joint Stock Limited Liability Company in the high and new technology category, the ratio of capital contribution in the form of industrial technology and non-patented proprietary technology by sponsors as a percentage of registered capital, the conditions for issuance of new shares or initial public offering shall be separately stipulated by the State Council.

Article 230 This Law shall become operative as of July 1, 1994.

Following are Articles 67 and 229 before their amendment:

Article 67 A state authorized investment entity or state authorized department shall safeguard and manage state assets in a wholly state-owned company in accordance with the relevant national statutes and administrative regulations.

Article 229 Companies registered and established prior to the implementation of this Law in accordance with national statutes, administrative regulations, local statutes, and the Opinions Concerning Regulation of Limited Liability Companies and the Opinions Concerning Regulation of Joint Stock Limited Companies formulated by the relevant authority in charge under the State Council, shall remain in existence, provided that those companies which do not meet all the requirements prescribed herein shall meet such requirements within a prescribed time limit. Detailed implementing measures shall be formulated by the State Council separately.

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