Decree of the Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, the State Administration
of Taxation, the State Administration for Industry and Commerce, Securities Regulatory Commission of China, and the State Administration
of Foreign Exchange No. 10 Interim Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors has been amended and adopted at the seventh
Ministry Meeting of the Ministry of Commerce of the People’s Republic of China. Provisions on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors is hereby promulgated, and shall enter into force as of Sept.8, 2006. Minister of the Ministry of Commerce, Bo Xilai Director General of State-owned Assets Supervision and Administration Commission of the State Council, Li Rongrong Director General Director General of the State Administration of Taxation, Xie Xuren Director General of State Administration for Industry and Commerce, Wang Zhongfu Chairman of Securities Regulatory Commission of China, Shang Fulin Director General of State Administration of Foreign Exchange, Hu Xiaolian Aug. 8, 2006 Provisions of the Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, the State
Administration of Taxation, the State Administration for Industry and Commerce, Securities Regulatory Commission of China and the
State Administration of Foreign Exchange on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (2006Revision) Content Chapter 1 General Provisions Chapter 2 Basic System Chapter 3 Approval and Registration Chapter 4 Foreign Investors Merge Domestic Companies Using Equity as the Means of Payment Section 1 Conditions for Equity Merger Section 2 Application Documents and Procedures Section 3 Special Provisions on Special Purpose Companies Chapter 5 Anti-Monopoly Examination Chapter 6 Supplementary Provisions Chapter 1 General Provisions Article 1 With a view to promoting and regulating foreign investors’ investment in China, introducing advanced technologies and management experience
from abroad, improving the utilization of foreign investment, rationalizing the allocation of resources, ensuring employment and
safeguarding fair competition and our country’s economic security, the Provisions are hereby formulated under the laws and administrative
regulations governing foreign investment enterprises, the Company Law, and other relevant laws and administrative regulations.. Article 2 For the purposes of the Provisions, mergers and acquisitions of a domestic enterprise by foreign investors shall mean that foreign
investors, by agreement, purchase equity interest from shareholders of domestic enterprise with no foreign investment (hereinafter
referred to as the “Domestic Company”) or subscribe to the increase in the registered capital of the Domestic Company with the result
that such Domestic Company changes into a foreign investment enterprise (hereinafter referred to as “Equity Merger and Acquisition”);
or the foreign investors establish a foreign investment enterprise and then, through such enterprise, purchase the assets of a domestic
enterprise by agreement and operate such assets, or the foreign investors purchase the assets of a domestic enterprise by agreement
and use such assets as investment to establish a foreign investment enterprise to operate such assets (hereinafter referred to as
“Asset Merger and Acquisition”). Article 3 In mergers and acquisitions of domestic enterprises, foreign investors shall comply with the laws, administrative regulations and
departmental rules and adhere to the principles of fairness, reasonableness, compensation for equal value, and honesty and good faith,
and shall not create excessive concentration, eliminate or hinder competition, disturb the social economic order or harm the societal
public interests, or lead to the loss of state-owned assets. Article 4 In mergers and acquisitions of domestic enterprises, foreign investors shall comply with the requirements regarding the investors’
qualifications and industrial, land and environmental protection policies as set forth in the laws, administrative regulations and
departmental rules and the relevant requirements under industry policies.
In the case of industries where no wholly foreign ownership is allowed under the Guidance Catalog of Foreign Investment Industries,
any merger or acquisition of a domestic enterprise engaging in the industry shall not lead to the foreign investors’ ownership of
all equity interest in the acquired enterprise. In the case of industries which require the Chinese party to be controlling or relatively
controlling, the Chinese party shall remain to be in the controlling or relatively controlling position in the acquired enterprise
after any merger or acquisition of the domestic enterprise engaging in such industries. In the case of industries where operation
by foreign investors is prohibited, no foreign investors may merge with or acquire any enterprise engaging in such industries.
The business scope of the enterprise previously invested by the merged domestic enterprise shall meet the relevant requirements on
foreign investment industrial policies; otherwise it shall be modified accordingly. Article 5 Where a foreign investor merges a domestic enterprise, if it involves transference of the property of state-owned assets or administration
of state-owned equity in public listed companies, it shall comply with the relevant laws and regulations on the administration of
state-owned assets. Article 6 A foreign investor shall, when merging a domestic enterprise to establish a foreign-funded enterprise, be subject to the approval
of the examination and approval authorities in accordance with the Provisions, and make registration of modification or establishment
in the registration authority.
If the enterprise to be merged is a domestic listed company, the foreign investor shall also go through relevant procedures with the
securities regulatory authority under the State Council in accordance with Administration Rules on Foreign Investors’ Strategic Investment
in Listed Companies. Article 7 All parties involved in the merger of domestic enterprises by foreign investors shall pay the taxes and accept the supervision of
taxation authorities in accordance with China’s relevant laws and regulations on taxation. Article 8 All parties involved in the merger of domestic enterprises by foreign investors shall comply with China’s relevant laws and regulations
on foreign exchange control, and shall promptly go through all procedures on approval, registration, putting on records and alteration
regarding foreign exchange with the competent foreign exchange administrative authorities. Chapter 2 Basic System Article 9 If the contribution made by a foreign investor to the registered capital of the foreign investment enterprise established after the
merger or acquisition is more than 25%, such enterprise shall be treated as a foreign investment enterprise.
If the contribution made by a foreign investor to the registered capital of the foreign investment enterprise established after the
merger or acquisition is less than 25%, the enterprise shall not be treated as a foreign investment enterprise, and it shall be subject
to relevant provisions on contracting a foreign loan applicable to a non-foreign investment enterprise when the enterprise intends
to contract a foreign loan, unless it is otherwise provided in relevant laws and regulations. The approval authority shall, when
issuing the approval certificate of foreign investment enterprise (hereinafter referred to as “Approval Certificate”), indicate on
the certificate the following words: “foreign investment contribution is less than 25%”. The registration administrative authority
and the foreign change administrative authority shall also, when issuing the business license of foreign investment enterprise and
the foreign exchange registration certificate, indicate on them the words of “The foreign investment contribution is less than 25%”.
If any domestic company, enterprise or natural person merges its affiliated domestic company in the name of a company legally established
or controlled by the aforesaid domestic company, enterprise or natural person in foreign countries or regions, the foreign investment
enterprise established after the merger shall not be treated as a foreign investment enterprise, unless that the overseas company
purchases any increased capital of domestic company, or the enterprise established after the merger by the overseas company increases
capital to a proportion of 25% of its registered capital. If the contribution made by a foreign investor other than the actual controller
is more than 25% of the registered capital of the enterprise established according to this paragraph, the enterprise may be treated
as a foreign investment enterprise.
The foreign investment enterprise established after the merger of domestic listed companies by the foreign investor shall be treated
in accordance with China’s relevant laws and regulations. Article 10 For the purposes of this Provisions, the approval authority in the present provisions shall refer to the Ministry of Commerce the
People’s Republic of China (hereinafter referred to as “the MOC”) or the provincial department of commerce (hereinafter referred
to as “the provincial approval authority”); the registration administrative authority shall refer to the State Administration for
Industry and Commerce of the People’s Republic of China (hereinafter referred to as “the SAIC”) or its authorized local administration
for industry and commerce; and the foreign exchange administrative authority shall refer to the State Administration of Foreign Exchange
of the People’s Republic of China (hereinafter referred to as “the SAFE”) or its branches.
Where, in accordance with the laws, administrative regulations or departmental rules, a foreign-funded enterprise established after
the merger belongs to the foreign investment enterprises of certain types or in certain industries that shall be approved by the
MOC, the provincial approval authority shall transfer the application documents to the MOC that shall decide on whether or not to
grant the approval in accordance with the law. Article 11 If any domestic company, enterprise or natural person merges its affiliated domestic company in the name of a company legally established
or controlled by the aforesaid domestic company, enterprise or natural person in foreign countries or regions, it shall be subject
to the approval of the MOC.
The parties thereto shall not evade the above provision by the domestic investment of a foreign investment enterprise or by any other
means. Article 12 If foreign investors merge a domestic enterprise and obtain the actual control over the enterprise, and if such merger involves any
critical industry, affects or may affect the security of national economy, or causes transference of actual control over the domestic
enterprise who possesses a resound trademark or China’s time-honored brand, the parties to the merger shall apply to the MOC.
Where the parties thereto fail to make an application and the merger materially affects or may materially affect the security of national
economy, the MOC may, together with other competent authorities, request the parties to stop the transaction, assign relevant equity
or assets, or take any other effective actions, to eliminate the affect of the merger on the security of national economy. Article 13 Where a foreign investor carries out equity merger, the foreign investment enterprise established after the merger shall succeed to
the claims and debts of the merged domestic company.
Where a foreign investor carries out asset merger, the domestic enterprise that sells assets shall assume its original claims and
debts.
The foreign investor, the merged domestic enterprise, the creditors and other parties may reach an agreement additionally on the disposition
of the claims and debts of the merged domestic enterprise, provided that the agreement shall not damage a third person’s interests
or public interests. The agreement on disposition of the claims and debts shall be submitted to the approval authority.
At least fifteen (15) days prior to the submission of application documents to the approval organ by the investors, the domestic enterprise
that sells assets shall notify all creditors, and shall make a public announcement on the newspaper of provincial level or above
published nationwide. Article 14 The parties to a merger or acquisition shall determine the transaction price on the basis of the result of the evaluation of the equity
interest to be transferred or of the assets to be sold conducted by the asset evaluation institution. The parties to a merger or
acquisition may agree on an asset evaluation institution established within the territory of China in accordance with the law. Asset
evaluation shall be conducted by adopting internationally recognized evaluation methods. It is prohibited to transfer equity interest
or sell assets at a price obviously lower than the evaluation result for the purpose of transferring the capital out of China in
a disguised way.
When a foreign investor merges a domestic enterprise, and thus resulting in the alteration of the equity rights formed from investment
of state-owned assets or transference of the property of state-owned assets, the evaluation shall be made in accordance with the
relevant provisions on the administration of state-owned assets. Article 15 The parties to a merger shall explain whether there is relationship of affiliation among the parties. If there are two parties belong
to an actual controller, the parties shall disclose the actual controller to the approval authority, and shall explain its purpose
of merger and whether the result of evaluation is in conformity to the reasonable market value. The parties thereto shall not evade
the above provision by means of trust, custody or any other means. Article 16 A foreign investor shall, when merging a domestic enterprise to establish a foreign investment enterprise, within three (3) months
as of the day when the foreign investment enterprise is issued its business license, pay all the consideration to the shareholders
who transfer the equities or to the domestic enterprise which sells the assets. In case of any particular circumstance under which
the period needs to be extended, the foreign investor shall, approved by the approval authority, pay 60% or more of the consideration
within six (6) months as of the day when the foreign-funded enterprise is issued its business license, and pay all the consideration
within one (1) year, and the proceeds shall be distributed according to the proportion of investments it has actually contributed.
If a foreign investor purchases the increased capital of a domestic company, the shareholders of a limited liability company or a
domestic joint stock company established with promoters buying out all shares issued shall, when the company is applying for a business
license for foreign investment enterprise, pay more than 20% of the increased registered capital, and the time limit for payment
of remaining increased registered capital shall be subject to the provisions of the Company Law of the People’s Republic of China,
relevant laws and regulations on foreign investment and the Regulations of the People’s Republic of China on Administration of Registration
of Companies, unless it is otherwise provided in other applicable laws and administrative regulations. When a joint stock company
issues new shares to increase its registered capital, the shareholders may subscribe the new shares in accordance with relevant provisions
on payment of capital contribution when establishment of a joint stock company.
Where a foreign investor carries out an asset merger, it shall stipulate the time limit for contribution of investments in the contract
and articles of association of the foreign investment enterprise under planned establishment. Where the foreign investor establishes
a foreign investment enterprise, and through which purchases the assets of a domestic enterprise and operates such assets, it shall
contribute the investments equivalent to the consideration of the assets within the time limit for payment of consideration as provided
for in Paragraph 1 of this Article 16 ; as for the remaining investments, the time limit for contribution shall be subject to relevant
provisions regarding establishment of a foreign investment enterprise.
Where a foreign investor merges a domestic enterprise to establish a foreign investment enterprise, and the investment contribution
is less than 25% of the foreign investment enterprise so established, the investor shall, contribute all the investments in cash
within three (3) months as of the day when the foreign investment enterprise is issued its business license; or contribute all the
investments in kind or in industrial properties, etc. within six (6) months as of the day when the foreign investment enterprise
is issued its business license. Article 17 The means of payment as the consideration shall conform to China’s relevant laws and administrative regulations. Where a foreign investor
uses the currency of RMB it lawfully owned as the means of payment, it shall be subject to the approval of the foreign exchange administrative
authority. Where a foreign investor uses the equity rights it is enpost_titled to dispose of as the means of payment, it shall be subject
to the provisions Chapter Four hereof. Article 18 After a foreign investor purchases by agreement the equity rights of a domestic company, and the domestic company has been altered
to be established as a foreign investment enterprise, the foreign investment enterprise’s registered capital shall be the registered
capital of the original domestic company, and the investment contribution by the foreign investor shall be the proportion of the
purchased equity in the original registered capital.
Where a foreign investor purchases the increased capital of a domestic limited liability company, the registered capital of a foreign
investment enterprise established after the merger shall be the sum of the original domestic company’s registered capital and the
increased capital. The foreign investor and other original shareholders of the merged domestic company shall, on the basis of the
asset evaluation of the domestic company, determine the proportions of their respectively contributed investments in the foreign
investment enterprise’s registered capital.
Where a foreign investor purchases the increased capital of a domestic joint stock company, the registered capital of a foreign investment
enterprise established after the merger shall be determined in accordance with the relevant provisions in the Company Law of the
People’s Republic of China. Article 19 Where a foreign investor merges a domestic enterprise by equity merger, the upper limit of the total investment amount of the foreign-funded
enterprise established after the merger shall be determined according to the following proportions, unless it is otherwise provided
in relevant state’s laws and regulations: (1) if the registered capital is less than USD 2,1 million, the total investment amount shall not exceed ten sevenths (10/7) of the registered
capital; (2) if the registered capital is more than USD 2,1 million but less than USD 5 million, the total investment amount shall not exceed 2
times of the registered capital; (3) if the registered capital is more than USD 5 million but less than USD 12 million, the total investment amount shall not exceed 2.5
times of the registered capital; (4) if the registered capital is more than USD 12 million, the total investment amount shall not exceed 3 times of the registered capital. Article 20 Where a foreign investor merges a domestic enterprise by asset merger, it shall determine the total investment amount of the foreign
investment enterprise under planned establishment according to the transaction price for purchasing the assets and the actual scale
of production and operation. The proportion of the registered capital of the foreign investment enterprise under planned establishment
in its total investment amount shall conform to relevant provisions. Chapter 3 Approval and Registration Article 21 Where a foreign investor merges a domestic enterprise by equity merger, it shall, pursuant to the total investment amount of the foreign
investment enterprise under planned establishment, the type of the enterprise and the industry it engages in, submit the following
documents to the approval authority with the corresponding approval power in accordance with the laws, administrative regulations
and departmental rules on establishment of foreign investment enterprises: (1) the resolution of the shareholders of the merged domestic limited liability company on unanimous consent of the foreign investor’s
equity merger, or resolution of the shareholders’ meeting of the merged domestic stock limited company on consent of the foreign
investor’s equity merger; (2) the application for the merged domestic company to be modified in accordance with the law into and be established as a foreign investment
enterprise; (3) the contract and articles of association of the foreign investment enterprise established after the merger; (4) the agreement on the foreign investor’s purchase of the shareholders’ equity of the domestic company or on the subscription of the
domestic company to increase capital; (5) the financial auditing report of the merged domestic company in the previous accounting year; (6) the identification certificate or incorporation certificate and the credit certificate of the investor notarized and attested according
to law; (7) the statement on the enterprises invested by the merged domestic company; (8) the business licenses (duplicates) of the merged domestic company and of the enterprises it invests in; (9) the plan for re-settlement of the merged domestic company’s employees; (10) the documents required in articles 13, 14 and 15 hereof.
Where the business scope, scale and obtainment of land use right of the foreign investment enterprise established after the merger
involves permits from other relevant governmental departments, the relevant permit documents shall be submitted along with those
provided for in the preceding paragraph. Article 22 The equity purchase agreement, capital increase agreement for domestic company shall be governed by Chinese laws, and shall include
the following contents: (1) information regarding each party to the agreements, including its name, domicile, and the name, position and nationality, etc. of
its legal representative; (2) the proportions and price of the purchased equity or the capital increased from subscription; (3) the term and method for performance of the agreements; (4) the rights and obligations of each party to the agreements; (5) the liabilities for breach of the agreement and settlement of disputes; (6) the date and place for conclusion of the agreements. Article 23 Where a foreign investor merges a domestic enterprise by asset merger, it shall, pursuant to the total investment amount of the foreign
investment enterprise under planned establishment, the type of the enterprise and the industry it engages in, submit the following
documents to the approval authority with the corresponding approval power in accordance with the laws, administrative regulations
and departmental rules on establishment of foreign investment enterprises: (1) the resolution of the property holders or authority of the domestic enterprise on agreeing to sell the assets; (2) the application for the establishment of the foreign investment enterprise; (3) the contract and articles of association of the foreign investment enterprise to be established; (4) the agreement concluded between the foreign investment enterprise to be established and the domestic enterprise on purchase of assets,
or, the agreement concluded between the foreign investor and the domestic enterprise on assets purchase; (5) the articles of association and business license (duplicates) of the domestic enterprise subject to the Merger and Acquisition; (6) the evidence of notice and public announcement to creditors by the domestic enterprise subject to the Merger and Acquisition and statement
on whether or not any objection being made by creditors; (7) the identification certificate or incorporation certificate and the credit certificate of the investor notarized and attested according
to law; (8) the plan for employees re-settlement of the domestic enterprise subject to the Merger and Acquisition; (9) the documents required to submitted in Article 13 , Article 14 and Article 15 hereof.
Where the assets of the domestic enterprise purchased and operated in accordance with the preceding paragraph involves permits from
other relevant governmental departments, the relevant permit documents shall be submitted along with those provided for in the preceding
paragraph.
Where a foreign investor purchases the assets of a domestic enterprise by agreement and invests such assets in establishing a foreign
investment enterprise, it shall not, prior to the establishment of the foreign investment enterprise, operate any business with such
assets. Article 24 The assets purchasing agreement shall be governed by the laws of China, and shall include the following contents: (1) information of each party to the agreements, including its name and domicile, and the name, position and nationality, etc. of its
legal representative; (2) the list and price of the assets under planned purchase; (3) the term and method for performance of the agreements; (4) the rights and obligations of each party to the agreements; (5) the liabilities for breach of the agreement and settlement of disputes; (6) the date and place for conclusion of the agreements. Article 25 Where a foreign investor merges a domestic enterprise to establish a foreign investment enterprise, the approval authority shall,
unless otherwise provided for in the present provisions, decide on, in accordance with the law, whether or not to grant the approval
within thirty (30) days as of the receipt of all the documents submitted. If the approval authority decides to grant the approval,
it shall issue a certificate of approval.
Where the approval authority decides to approve a foreign investor to purchase by agreement the shareholders’ equity of a domestic
company, it shall simultaneously make copies of the relevant approval documents separately to the foreign exchange administrative
authority at the equity transferor’s locality and that at the domestic company’s locality. The foreign exchange administrative authority
at the equity transferor’s locality shall issue the relevant certificate on registration of share transference foreign exchange earnings
and foreign exchange from foreign investment, which is the valid document to p
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