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Regulations Issued on Restructuring of State Owned Enterprises with Foreign Funds

State Economy and Trade Commission, Ministry of Finance, State Administration of Industry and Commerce and State Administration of Foreign Exchange jointly issued ¡°Interim Provisions on Restructuring of State Owned Enterprises with Foreign Funds¡± (the Provision) on November 8, 2002. The Provision shall come to effect on January 1, 2003. The Provision, together with the previously issued ¡°Notification on Relevant Issues of Transferring State-owned Shares and Corporate Share of Listed Company to Foreign Investors¡±, form the administrative policy for restructuring of China¡¯s state owned enterprises (SOE) with foreign funds.

Restructuring of SOEs with foreign funds must meet the following requirements:

  • Holder of state-owned property shall prior to restructuring organize the accounting of assets, specifying of property rights, and settlement of debts liabilities and credit rights of the SOE;
  • The restructuring SOE and the restructuring party shall jointly formulate a scheme to resolve settlement of the employees for review and approval of the representative conferences of the staff and workers if the controlling right of the SOE or the entirety or the essential part of the SOE¡¯s assets is transferred to foreign investors;
  • For restructuring conducted through assets sale, debt liabilities and credit rights shall continue to be assumed by the pre-restructuring enterprise. For restructuring conducted through other methods, the post-restructuring enterprise shall assume previous credit rights and debt liabilities;
  • The restructuring party should publicly disclose restructuring information and extensively invite foreign investors to participate in the restructuring. It should also investigate into matters concerning foreign investors, such as their qualification, credit, financial status, managing ability, payment guarantee, qualification of the operator and others.

For restructuring that involves transferring stated-owned properties or selling of state-owned assets, the restructuring party should first consider using public bidding so as to ascertain proper selling or transferring price and identify competent foreign investors.

The Provision also stipulated in details on the restructuring method and procedures, pricing mechanism, employee settlement and disposal of credit rights and debt liabilities, etc.

This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.

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