China 20/20 - Legal & Regulatory Developments - November 2012

by Orrick, Herrington & Sutcliffe LLP

China Finalized the Amendments to the Rules for Establishing Foreign Invested Securities Companies

On October 11, 2012, the China Securities Regulatory Commission (“CSRC”) issued the Decision on Amending the Rules for the Establishment of Securities Companies with Foreign Equity Participation, which took effect immediately. As provided in the draft version of the amendments issued on August 24, 2012, the cap on the aggregate (direct and indirect) shareholding ratio or ratio of rights and interests of foreign investors in a Sino-foreign equity securities company is increased from 33% to 49%. Among the domestic shareholders of a Sino-foreign securities joint venture, there must be a domestic securities company which holds no less than 49% equity or rights and interests of the joint venture. In the case of a domestic securities company converted into a Sino-foreign securities joint venture, there must be a domestic shareholder which holds no less than 49% shares of the joint venture.

The full Chinese text of the amendments is available here.

Notice of the Ministry of Culture on Implementing Supplementary Provisions IX to CEPA

On September 27, 2012, the Ministry of Culture issued the Notice on Relevant Matters Concerning the Implementation of the Supplementary Provisions IX to the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) and the Supplementary Provisions IX to the CEPA between the Mainland and Macau. Under the notice, the Ministry of Culture allows Hong Kong and Macau service providers to (1) establish wholly owned internet access service business sites (such as an internet cafe) in the Mainland; (2) establish wholly owned entertainment venues on a pilot basis in Qianhai in Shenzhen municipality and Hengqin in Zhuhai municipality; and (3) establish performance groups on an equity joint venture basis in the Mainland, in which the Mainland party must retain a majority shareholding position. The above provisions will take effect on January 1, 2013.

The full Chinese text of the notice is available here.

Draft Measures for the Administration of Registration of Social Insurance

On September 20, 2012, the Ministry of Human Resources and Social Security issued the draft Measures for the Administration of Registration of Social Insurance. The public was allowed to submit comments on the draft until October 20, 2012. The draft measures, if implemented, will supersede the Interim Measures for Administration of Registration of Social Insurance issued in 1999. According to the draft measures, an employer shall apply to the social insurance agency with jurisdiction over its registered address to carry out a social insurance registration within 30 days of the date of its establishment. The social insurance agency shall issue a social insurance registration certificate within 15 days of receipt of the application materials if they are acceptable. In case any changes occur to the registration information, the employer shall go through an amendment registration with the social insurance agency. A de-registration shall be performed when the employer is involved in a dissolution, bankruptcy, or merger etc. Under the draft measures, an employer shall also complete the social insurance registration of its employees.

The full Chinese text of the notice is available here

CSRC Opens Doors to Unlisted Public Companies 

On September 28, 2012, CSRC issued the Administrative Measures for the Supervision of Unlisted Public Companies. According to the measures, unlisted public companies refers to unlisted companies limited by shares: (1) which have over 200 shareholders as a result of issuing or transferring shares to specific targets; or (2) whose shares are transferred to the general public. Public transfer of shares of unlisted public companies shall be completed in a legally established stock exchange. The measures provide that unlisted public companies shall apply to CSRC for approval when they publicly transfer their shares or when they transfer their shares to specified targets privately and this results in them having over 200 shareholders (if the number of shareholders drops to less than 200 within three months, the application is not required). In addition, for a private transfer of shares in unlisted public companies to specific targets, the targets should comprise: (1) corporate shareholders; (2) corporate directors, supervisors, senior managers and key employees; and (3) natural person investors, corporate investors and other economic organizations that conform to the investor appropriateness management rules. Unlisted public companies that apply for private issue of shares to specified targets are entitled to apply for one-time approval and issue in stages. However, the initial issue amount shall be not less than 50% of the total issued shares amount.

The full Chinese text of the measures is available here.

MOFCOM Issues Draft Implementation Rules on Mechanical and Electrical Products International Tendering and Bidding for Comments

On October 10, 2012, the Ministry of Commerce (“MOFCOM”) issued the draft Implementation Rules on Mechanical and Electrical Products International Tendering and Bidding for comments. The public was allowed to submit comments on the draft until October 20, 2012. The draft rules, if implemented, will supersede the Implementation Rules on Mechanical and Electrical Products International Tendering and Bidding issued in 2004 (the “2004 rules”). Under the draft rules, in situations where international bidding would otherwise apply, if it is specified that the place of origin of the product to be procured is within the customs territory of China, the procurement process may be exempted from international bidding. However, several exemptions which were included in the 2004 rules have been removed including: (1) the import of mechanical and electrical products within the total investment of a foreign invested enterprise; (2) mechanical and electrical products required for specific products or industries determined by the State Council and products required for major unexpected contingencies; and (3) mechanical and electrical products enjoying a discount of more than 50% of the estimated contract value when the manufacturer offers discounts. The draft also provides that mechanical and electrical products with a place of origin outside the customs territory of China offered for sale after exhibition in China may be exempted from international bidding.

The full Chinese text of the draft rules is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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