CIRCULAR OF STATE ECONOMIC AND TRADE COMMISSION ON PRINTING AND DISTRIBUTING THE INTERIM PROVISIONS ON STATE-OWNED ENTERPRISES’ UTILIZING OF FOREIGN INVESTMENT FOR RESHUFFLING

The State Economic and Trade Commission

Circular of State Economic and Trade Commission on Printing and Distributing the Interim Provisions on State-Owned Enterprises’ Utilizing
of Foreign Investment for Reshuffling

GuoJingMaoWaiJing [1998] No.576

September 14, 1998

Economic and Trade Committees (Economic Committees, Economic Planning Committees) of all provinces, autonomous regions, municipalities
separately listed on the State plan, municipalities directly under the Central Government, Xinjiang Production and Building Corps
and all the branches under the State Council:

Along with the development of our country’s utilizing of foreign direct investment and deepening of the reformation of state-owned
enterprises, besides putting foreign funds into infrastructure and technology improvement projects, state-owned enterprises also
utilize foreign funds to annex other domestic enterprises, to complement enterprise floating assets and to reimburse enterprise debts
as forms of asset reshuffling. In order to totally carry out the policy in utilizing foreign investment of “positiveness, reasonableness
and effectiveness”, to prevent state-owned assets from drainage, to protect state-owned enterprises’ rights and interests, and to
avoid borrowing foreign debts in disguised form, state-owned enterprises’ utilizing of foreign investment for reshuffling must be
regulated in accordance with laws and regulations relevant. Now Moftec (Ministry of Foreign Trade and Economic Cooperation) distributes
Interim Provisions on State-Owned Enterprises’ Utilizing of Foreign Investment for Reshuffling to you all, please implement it accordingly.
Attachment:Interim Provision on State-owned Enterprises’ Utilizing of Foreign Investment for Reshuffling

Article 1

In order to strengthen the control of state-owned enterprises’ utilizing of foreign investment for reshuffling, to totally carry out
the policy of “positiveness, reasonableness and effectiveness” in utilizing foreign investment, protect state-owned enterprises’
rights and interests, to facilitate the reformation of state-owned enterprises, this regulation was formulated in accordance with
Law of Sino-Foreign Joint Venture of the People’s Republic of China, Law of Sino-Foreign Cooperative Venture of the People’s Republic
of China, and Law of Foreign-Owned Venture and other laws and regulations concerned.

Article 2

State-owned enterprises’ utilizing of foreign investment for reshuffling, primarily means that state-owned enterprises’ utilizing
direct foreign investment to annex other domestic enterprises (hereinafter Annexation Projects), to complement self-owned floating
assets (hereinafter Complement Projects) and to reimburse enterprise debts (hereinafter Reimbursement Projects).

Article 3

State-owned enterprises’ utilizing of foreign investment for reshuffling must be operated in accordance with principles as follows:

1.

Strictly observe the Interim Provisions on Foreign Investment Orientation and the Catalog of Industries for Foreign Investment and
other laws and regulations relevant.

2.

Appropriately resettle laid-off workers, not allowed to infringe their lawful rights and interests.

3.

Practically safeguard state-owned assets; prevent it from drainage.

4.

Protect creditors’ interests, not allowed to avoid any bank debts in any way.

Article 4

Moftec, jointly with other government branches concerned, is in charge of directing state-owned enterprises in utilizing foreign investment
for reshuffling.

Article 5

Project Proposals and Feasibility Study Reports of state- owned enterprises’ utilizing foreign investment shall be examined and verified
in accordance with procedures and limits of authority stipulated herein, respectively:

1.

If total investment (in an Annexation Project, total investment stipulated here means total enterprise assets after annexation, hereinafter
the same) is above US$100,000,000 (US$100,000,000 included), such a project shall be submitted for approval to the State Council
by the Economic and Trade Committees concerned (Economic Committees, Economic Planning Committees) of all provinces, autonomous regions,
municipalities directly under the Central Government and municipalities separately listed on the State plan and relevant branches
under the State Council, along with their own reviewing suggestions.

2.

If total investment is below US$100,000,000 and above US$30,000,000 (US$30,000,000 included), such a project shall be initially reviewed
by the Economic and Trade Committees concerned (Economic Committees, Economic Planning Committees) of all provinces, autonomous regions,
municipalities directly under the Central Government and municipalities separately listed on the State plan and relevant branches
under the State Council, who shall then submit it to Moftec for confirmation.

3.

If total investment is below US$30,000,000, such a project shall be examined and verified by the Economic and Trade Committees concerned
(Economic Committees, Economic Planning Committees) of all provinces, autonomous regions, municipalities directly under the Central
Government and municipalities separately listed on the State plan, and relevant branches under the State Council. Meanwhile all the
relevant materials shall be submitted to Moftec for record. Such limits of authority shall not be allowed to be transferred to a
lower level. If the project falls into categories of restriction projects (Second Category), it shall be processed in accordance
with the Interim Provisions on Foreign Investment Orientation.

Article 6

The report for approval shall include items stipulated herein below:

1.

The project name and the location

2.

The state-owned enterprise’s name, its business scope, its technology force, its assets condition and its state of operation

3.

The name(s) of the foreign investor(s), its or their native country or countries, registration certificates, the legal representative
certificates, credit standing certificates, technology force, business scope

4.

Project contents, development targets and directions

5.

The way and scale of utilizing foreign investment, product variety, throughput, market orientation

6.

Total investment, registered capital, ratio between investments for all participants and capital sources

7.

Fixed years of business

8.

Economic effectiveness and social effectiveness analyses

9.

Projects of imbalance of payments in foreign currencies shall be submitted along with the approval from state foreign exchange control
authorities

10.

Suggestions of administrative departments in charge (subjects of investment)

Article 7

Different documents shall be submitted for different item categories, accordingly:

I.

Annexation Projects

1.

General information of the merge enterprise and the merged enterprise (including their business scope, their scale of production,
equipment and technology level, financial standings, etc.).

2.

Balance sheets and statements of assets losses and gains of the merge enterprise and the merged enterprise for the last three consecutive
years, and a detailed list of the merged enterprise’s properties.

3.

Annexation plan (including annexation pattern, way of reshuffling of assets and liabilities, debt condition of the enterprise after
annexation, business scope, scale of production, market share of the product, etc.).

4.

Forms of investment and the time limit of capital subscription of foreign investors.

5.

Resettling program of laid-off workers of the merged enterprise(s).

6.

Opinions of the creditor bank of the merged enterprise.

7.

The opinions of the Coordination Group for the re-employment of laid- off workers from annexation and bankruptcy. The coordination
group should be located in the same province (autonomous region, municipality directly under the Central Government) as the merge
enterprise or the merged enterprise does. Provided that the merge enterprise or the merged enterprise has been transformed into company,
the annexation resolution of the stockholders’ meeting shall be required.

8.

Letter of intent of annexation concluded by the merge and the merged enterprise.

9.

State-Owned Assets Appraisal Report (including the assets of the merged enterprise) confirmed by relevant state-owned assets management
authorities at the same level.

Project proposals can only cover items 1, 3, 6, and 7.

II.

Complement Projects

1.

General enterprise information (including its business scope, its scale of production, produce and sale conditions, rate of circulating
fund turnover, capacity utilization rate, assets-liability ratio).

2.

Balance sheets and statements of assets losses and gains for the last three consecutive years.

3.

Enterprise self-owned circulating fund condition, the quantity needed of enterprise circulating fund and its calculating basis.

4.

Forms of investment and the time limit of capital subscription of foreign investors.

5.

The opinions of the enterprise’s main bank of deposit.

6.

State-Owned Assets Appraisal Report confirmed by relevant state-owned assets management authorities at the same level.

Project proposals can only cover items 1, 3 and 5.

III.

Reimbursement Projects

1.

General enterprise information (including its business scope, its scale of production, equipment and technology level, return on total
assets, return on net assets, investment recovery period and loan maturity, etc.)

2.

General enterprise debt information (including debt maturity, currency structure, payback mode, major debtees, overdue debts, etc.)

3.

Balance sheets and statements of assets losses and gains for the last three consecutive years

4.

Payback program (including its debt disposition agreement with its debtees)

5.

State-Owned Assets Appraisal Report confirmed by relevant state-owned assets management authorities at the same level

Project proposals may only cover items 1 and 2.

Article 8

If after annexation, the state-owned enterprise still is in the holding position, the enterprise after annexation shall be allowed
to benefit from relevant policies in accordance with the State Council’s Complement Circular on Related Matters from Tryout Annexation
Practice of State-owned Enterprises and Resettlement of Workers in Such State-Owned Enterprises Herein Stipulated [State Circulation
(Guofa) [1997] No. 10], provided that the enterprise after annexation complies with other conditions required.

Article 9

In projects of state-owned enterprises’ utilizing of foreign investment for reshuffling, in the feasibility study report it shall
be proscribed that foreign investors shall inject their contributions into the project within three months after the release of the
business license. If for the reason of force majeure circumstances, after examination and approval, foreign investors shall inject
at least 60% of their contributions to the project within six months after the release of the business license, and within one year,
all the contributions shall have been injected into the project. Before total contribution, foreign investors can only benefit from
the project on the basis of their actual contributive proportion.

Article 10

The feasibility study report after approval is the essential basis on which contracts (constitutions) shall be concluded. If contradicting
the feasibility study report, contracts (constitutions) shall be approved by authorities reviewing and authorizing the feasibility
study report.

Article 11

This regulation shall be applied when state-owned enterprises for reshuffling utilize investment from investors from the Hong Kong
Special Administrative Region, Taiwan and Macao.

Also, this regulation shall be applied to non-state-owned enterprises.

Article 12

This regulation shall be subjected to interpretation by Moftec and shall enter into force as of the date of promulgation.