Charltons-ChinaNewsAlertsNewsletter-31December2004
online version
China News Alert Issue 85
Headlines
Non-tradable Shares to be transferred to the Shanghai and Shenzhen Stock Exchanges and the China Securities Depository and Clearing Corporation
The Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the China Securities Depository and Clearing Corporation (CSDCC), have jointly promulgated Regulations on the transfer of non-tradable shares of listed companies, which will come with effect on 1 January 2005.
From 1 January 2005, all trading of non-tradable shares of listed companies is to be conducted through the SSE and the SZSE, and illegal trading of shares outside the stock exchanges is prohibited.
The regulations provide that the SSE and SZSE are responsible for checking compliance in relation to applications for share transfers, reviewing disclosure contents relating to share transfers, and providing services such as making share transfer information public. The CSDCC is responsible for handling matters such as queries relating to share transfers, temporary custody and share registration. Shares with the CSDCC under temporary custody arrangements cannot be transferred.
Parties involved in a share transfer can enter into an agreement to transfer non-tradable shares such that either the information can be publicly available or private. Share transfer procedures have to comply with relevant regulations, which provide that if the parties involved in a share transfer entrust a securities company to handle the share transfer procedures, the securities company must present a power of attorney and other documents to the relevant stock exchange and CSDCC. Before transferring non-tradable shares, holders must first submit an application to the CSDCC regarding the non-tradable shares intended to be transferred.
If non-tradable shares to be transferred are promoters' shares, the holder must submit a copy of the relevant listed company's business license affixed with the common seal of the listed company. If the non-tradable shares to be transferred are state-owned shares, the holder must submit approval documents issued by the state-owned assets supervisory and administration authorities. Where non-tradable shares are to be transferred to foreign investor(s), the parties must provide documents of approval issued by the Ministry of Commerce and certificates evidencing payment by foreign investor(s). If a change of shareholding of a company in the banking industry reaches or exceeds 10%, the company must submit approval documents issued by the China Banking Regulatory Commission. Where a change of shareholding of a listed company engaged in the insurance industry reaches or exceeds 10%, approval documents issued by the China Insurance Regulatory Commission must be submitted. If a share transfer involves an acquisition by a listed company, the parties must submit demurer documents issued by the CSRC. If a share transfer triggers obligations to make a tender offer, the parties must submit documents of exemption from tender offer or demurer documents issued by the CSRC.
The Regulations specify that shares proposed to be transferred must not be less than 1% of the total equity of a listed company. A shareholder applying to transfer less than 1% of equity is permitted to transfer all the relevant shares to a single transferee only. Where the total equity of a listed company exceeds RMB1 billion, this ratio can be reduced with Stock Exchange approval.
Applications for share transfers that do not conform with the provisions of the regulations are not to be affirmed by the stock exchanges, and the CSDCC has the right not to proceed with the registration procedures.
MBOs Subject to Restrictions
Mr Li Rongrong, the Director of the State-owned Assets Supervision and Administration Committee ("SASAC"), speaking during an interview at a conference of leaders of State-owned enterprises under the control of the Central government held in mid December 2004, confirmed that the SASAC will encourage the listing abroad of more State-owned enterprises directly under the control of the Central government ("SOEs") as soon as possible. Mr Li Yizhong, Party Secretary and Vice Director of the SASAC, emphasized that management buy-outs (MBOs) of large SOEs are prohibited. MBOs of small and medium - sized state enterprises must be carried out in accordance with the relevant regulations including the Opinions regulating restructuring of state-owned enterprises, and the Provisional Measures for the transfer of state-owned property rights in enterprises. Mr Li Yizhong outlined five areas of restrictions on MBOs introduced by the SASAC.
•Managers leaving their positions will be audited and managers who have presided over declining corporate performance cannot buy stakes in their companies.
•Restructuring schemes are to be implemented by appointed agencies, managers cannot themselves make major decisions regarding property right transfers and are prohibited from purchasing any state-owned property rights which they are selling.
•The sale or transfer price is to be determined by competitive bidding with managers having no preferential treatment over other purchasers.
•Managers shall not borrow from state-owned or state-controlled enterprises (including enterprises they work for), or raise mortgages secured on an enterprise's property rights or physical assets.
•Expenses are not deductible from the acquisition price unless otherwise provided by State regulations and it is improper for managers to acquire a large stake in a state-owned enterprise.
Mr Li Rongrong referred to relatively large divergences of opinion on the subject of the listing of SOEs. Some are of the view that capital is not in short supply in the market, and hope that some SOEs with high-quality assets carry out IPOs on the domestic market. Others are concerned that domestic listings of SOEs may place considerable pressure on the ability of other smaller listed companies to attract shareholder capital. The SASAC is therefore encouraging more enterprises to list abroad and when the domestic market has sufficient liquidity, SOEs can return and list on the domestic market. - if they have performed well when listed abroad, domestic investors will have increased confidence in them when they list in China.
Mr Li Rongrong also emphasised that all transactions relating to property rights in SOEs are to be effected on a transparent basis through the property title transaction organizations of Beijing, Shanghai and Tianjin. The SASAC is inviting some international accounting firms to audit major enterprises under the central government. The accounting firms will then be appointed when the relevant enterprises list overseas in the future. Currently, transfer agreements are the main methods of transferring State-owned shares of listed companies. Although state-owned shares cannot be listed, the SASAC hopes that their transfer can be effected transparently and is formulating transfer methods in relation to state-owned shares of listed companies.
NDRC and MOC Jointly Promulgate Guidance List on Foreign Invested Industries and permit investment in the Broadcasting, Film and TV Markets for the first time
On 10 December, 2004, the National Development and Reform Commission (NDRC) and the MOC issued the 2004 edition of the Catalogue for the Guidance of Foreign Invested Industries, which will come into force on 1 January, 2005. On 4 March, 2002, the State Council approved the abolition of the Catalogue for the Guidance of Foreign Invested Industries issued on 11 March, 2002. The new list includes for the first time, broadcasting and TV program production, and film making in the permitted category. The new catalogue also changed hot spot industries or products that have become targets for "blind investment" from the 'encouraged' category to the 'permitted' category (please see below).
The new catalogue includes an amended version of the old catalogue as well as some new additions:
•Areas designed to encourage the further opening up of China's economy to international markets and introduce advanced technologies. High priority domestic industries and products are included in the encouraged category or additional incentives provided through amendments to the original encouraged list - for example, included in the encouraged foreign investment class, are wide-screen multicolour projected display made with all key components, ethylene glycol production, automobile electronic device production, 300,000-kw large CFB boiler production, and CDROM reproduction.
•Broadening foreign investment accession scope and accelerating the globalization of the service industry. For example, for the first time designating production and broadcasting TV programs and film production as areas permitting foreign investment.
•Meeting the perceived need for macro-control on a national scale and preventing investment in certain industries. "Hot spot" industries or products which have already attracted "blind investment", have been transferred from the encouraged category to the permitted category for foreign investment. Introducing advanced technology, raising standards and preventing inferior quality, redundant projects in certain industries or products where there is an overheated investment trend. This would include, for example, no longer encouraging dry-quenching coking and rammed coal coking. The refining and processing of steel and non-ferrous metals such as wide and heavy plate production, galvanized plate production and scrap steel processing have also been removed from the encouraged class. Deleted items include alumina production, urethane elastic fiber production and polyester production. Large theme park construction has also been categorised as restricted.
Corporate & Commercial
China to Abolish Import Licenses on General Goods from 2005
China will abolish import licences on automobiles and key automobile parts, and manufacturing equipment relating to compact discs. To date, China has abolished all import licences on general goods, and only retains import licences on three sub-categories of special goods.
In accordance with the Foreign Trade Law of the PRC and Cargo Imports And Exports Statute of the PRC, the Ministry of Commerce and Customs General Administration of the PRC has released the Directory of goods subject to import licenses in 2005. From 2005, China will impose import licenses only on three sub-categories of special goods-controlled chemicals, precursor chemicals and ozone depleting substances, a total of 83 8-digit HS codes.
This is the fourth time China has abolished import licenses on goods since China 's entry to the WTO at the end of 2001. Since 1 January, 2002, China has abolished import licences on 14 categories of goods including polyester fibre, tobacco and tobacco products, colour TV sets and their display tubes and colour sensitive materials as well as import licenses on automobiles and their key components and automobile tyres. The number of categories of goods subject to import licenses has been reduced from 26 to two. China is to abolish import licenses in respect of all general goods from 2005.
NDRC Publishes First Allocation of Coal Export Quotas for 2005
Pursuant to the Methods for regulating coal export quotas, the National Development and Reform Commission (NDRC) has published the first batch of coal export quotas for 2005. The first quotas amount to 64 million tons, accounting for 80% of total coal export quotas for 2005. Last month, the NDRC declared that total coal export quotas for 2005 stood at 80 million tons.
Under the "Methods" which came into effect from 1 July, 2004, the NDRC and the Ministry of Commerce are jointly responsible for determining the total amount of national coal export quotas and their allocation. Coal exports are subject to national trade supervision and administration. Exporters who are entitled to export coal can apply for coal export quotas. Every year, the NDRC will release the total amount of coal export quotas and application procedures for the following year before 31 October. The NDRC will accept applications for the following year's coal export quotas from 1 November to 15 November, and will allocate 80% of the coal export quotas for the following year prior to 15 December. The balance is allocated no later than 30 June.
Bonds
PBOC Releases Rules on Bond Trading
To implement the PRC Law on Administrative Licensing, the People's Bank of China ("PBOC") has released the Rules for Examination of Bond Trading in the Inter-bank Market, which took effect from 15 December, 2004.
The Rules, which comprise 23 articles, regulate the examination of trading of corporate bonds and standardise qualifications, procedures of application and review, and disclosure contents relating to the trading of bonds in the inter-bank bond market. The examination procedures relating to bond trading in the inter-bank bond market should become more transparent and standardised following implementation of the Rules. The Rules facilitate the entry of bonds, especially corporate bonds, to the inter-bank bond market and may be significant in broadening sources of investment funds for corporate bonds and expanding volumes in the corporate bond market as well as developing and improving the corporate bond market.
Foreign Investment
Foreign Investment in China First Time to Reach US$60 billion in 2004
According to the MOC's latest statistics, during the first 11 months of this year, China used foreign investment of US$ 57.5 billion with the monthly average exceeding US$5.2 billion and on this basis expects the figure for 2004 to exceed US$60 billion.
Official statistics for January to November 2004 show China approving 39,291 foreign-invested enterprises, a year on year increase of 7.31%, with contracted foreign investment amounting to US$135.038 billion, a 34.36% year on year increase whilst; utilized foreign investment increasing 22.05% year on year.
As at the end of November 2004, China had approved 504,568 foreign-invested enterprises with a total contracted investment value of US$1078.168 billion, of which US$559.023 billion had been actual foreign capital used.
MII: 18 Foreign Investors Apply to invest in the telecommunications sector
As at November 2004, 18 applications had been submitted to establish foreign-invested telecommunications operations in China.
A Ministry of Information Industry official recently confirmed that the 18 have all applied for value-added telecommunication business and some of the applications apparently do not meet the required standards. Of the applicants, four have received MII's Opinion on Reviewing Foreign Investment in Telecommunication Business and two have received the MII's Telecommunications Business Operation Licenses. The two applicants successfully granted a licence are reportedly Unicom-SK, jointly invested by Korea SK Corp. and Unicom, and Honglian95, Citic 21CN Company Limited. In the non-value added telecommunications area, in 2002 UK Vodafone reportedly purchased shares of the Hong Kong listed China Mobile entity and stated that Vodafone would try to increase its stake to 20%. British Telecom has reportedly cooperated with China Netcom and France Telecom with China Mobile to jointly invest in projects such as a research and development centre.
Chen Jinqiao, Chief of the Communication Policy Study Department of the Telecommunications Study Institute of MII, expressed the view that over the next 3 years, foreign investors will focus on value-added business and the mobile and internet area.
Capital Markets
Exchanges introduce new fees for seats
The Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) have issued a circular introducing new charging structures for fees for stock exchange seats from 2005. The current fixed annual fee will be replaced by a fee linked to trading volume, so that fees will be collected according to the trading volume reported by institutions who are members, special members and non-members with special purpose seats.
The new charging structure has two principles. First, annual seat fees will be linked to the annually reported trading volume relating to all seats owned by the particular institution, replacing the current fixed fees with with flexible fees. Secondly, a reporting form will distinguish between trading and non-trading types, and basic trading volume and excess trading volume. Trading-types comprise the purchase, sale and withdrawal of bonds, funds, A shares and B shares. Non-trading types refer to those reports that are outside the scope of trading-type reports, including reports relating to placings, subscriptions for new shares, rights issues, custody, conversion of convertible bonds to shares and resale. All types of reports can be divided into basic trading volume and excess trading volume categories. Every seat (whether or not it is suspended) is entitled to 20,000 reports relating to basic trading volume of trading and non-trading categories, respectively, for free. Trading volume which exceeds basic trading volume is categorized as excess trading volume. The excess trading volume of each trading type report is subject to a charge of RMB0.15, and a non-trading type report is subject to a charge of RMB0.01.
RMB20,000 is the minimum amount of annual seat fees for excess trading volume in relation to trading and non-trading types payable in respect of all seats on the two stock exchanges. Members or non-member institutions are entitled to a free annual reported trading volume quota of RMB20,000 for each seat. The circular specifies that the annual seat fees for 2004 will be collected according to whichever method produces the lower fee calculated (i.e., the original method or the new method). From 2005, all annual seat fees will be collected under the new method.