State Council Reform and Acquisition of Non-floating Shares in Listed Companies

By Jonathan Zhou, Fangda Partners, Shanghai

On November 11 2002, the China Securities Regulatory Commission (CSRC), the Ministry of Finance (MOF) and the State Economy and Trade Commission (SETC) jointly issued the Issues Relevant to the Transfer of State-owned Shares and Legal Person Shares in Listed Companies to Foreign Investors Circular (the Joint Circular). The Joint Circular sets out the approval requirements for foreign investors to acquire state-owned shares and legal person shares in Chinese listed companies (Non-floating Shares). According to the Joint Circular, the acquisition of Non-floating Shares should be subject to: (i) approval from the SETC on industry policies and enterprise restructuring; or approval of the State Council, if the deals are significant; (ii) MOF approval as to the administration on transfer of state assets; (iii) registration with the State Administration of Foreign Exchange (SAFE) in relation to foreign capital used for acquisition purposes; and (iv) registration with the State Administration of Industry and Commerce (SAIC) and the securities clearing company for change of title of the shares to be acquired.