Chapter I General Provisions

Article 1 With a view to promoting and regulating foreign investors' investment in China, introducing advanced technologies and management experience from abroad, improving the utilization of foreign investment, rationalizing the allocation of resources, ensuring employment and safeguarding fair competition and China's economic security, the provisions are hereby formulated under the laws and administrative regulations governing foreign investment enterprises, the Company Law, and other relevant laws and administrative regulations..

Article 2 For the purposes of the provisions, mergers and acquisitions of a domestic enterprise by foreign investors shall mean that foreign investors, by agreement, purchase equity interest from shareholders of a domestic enterprise with no foreign investment (hereinafter referred to as the "domestic company") or subscribe to the increase in the registered capital of a domestic company with the result that the domestic company changes into a foreign investment enterprise (hereinafter referred to as "Equity Merger and Acquisition"); or the foreign investors establish a foreign investment enterprise and then, through such an enterprise, purchase the assets of a domestic enterprise by agreement and operate such assets, or the foreign investors purchase the assets of a domestic enterprise by agreement and use such assets as investment to establish a foreign investment enterprise to operate such assets (hereinafter referred to as "Asset Merger and Acquisition").

Article 3 In mergers and acquisitions of domestic enterprises, foreign investors shall comply with the laws, administrative regulations and departmental rules and adhere to the principles of fairness, reasonableness, compensation for equal value, and honesty and good faith, and shall not create excessive concentration, eliminate or hinder competition, disturb the social economic order or harm the societal public interests, or lead to the loss of state-owned assets.

Article 4 In mergers and acquisitions of domestic enterprises, foreign investors shall comply with the requirements regarding the investors' qualifications as set forth in the laws, administrative regulations and departmental rules and industrial, land and environmental protection policies.

In the case of industries where no wholly foreign ownership is allowed under the Guidance Catalog of Foreign Investment Industries, any merger or acquisition of a domestic enterprise engaging in the industry shall not lead to the foreign investors' ownership of all equity interest in the acquired enterprise. In the case of industries which require the Chinese party to be controlling or relatively controlling, the Chinese party shall remain to be in the controlling or relatively controlling position in the acquired enterprise after any merger or acquisition of the domestic enterprise engaging in such industries. In the case of industries where operation by foreign investors is prohibited, no foreign investors may merge with or acquire any enterprise engaging in such industries.

The business scope of the enterprise previously invested by the merged domestic enterprise shall meet the relevant requirements on foreign investment industrial policies; otherwise it shall be modified accordingly.

Article 5 Where a foreign investor merges a domestic enterprise, if it involves transference of the property of state-owned assets or administration of state-owned equity in public listed companies, it shall comply with the relevant laws and regulations on the administration of state-owned assets.

Article 6 A foreign investor shall, when merging a domestic enterprise to establish a foreign-funded enterprise, be subject to the approval of the examination and approval authorities in accordance with the provisions, and make registration of modification or establishment in the registration authority.

If the enterprise to be merged is a domestic listed company, the foreign investor shall also go through relevant procedures with the securities regulatory authority under the State Council in accordance with the Administration Rules on Foreign Investors' Strategic Investment in Listed Companies.

Article 7 All parties involved in the merger of domestic enterprises by foreign investors shall pay the taxes and accept the supervision of taxation authorities in accordance with China's relevant laws and regulations on taxation.

Article 8 All parties involved in the merger of domestic enterprises by foreign investors shall comply with China's relevant laws and regulations on foreign exchange control, and shall promptly go through all procedures on approval, registration, putting on records and alteration regarding foreign exchanges with the competent foreign exchange administrative authorities.

Chapter II Basic System

Article 9 If the contribution made by a foreign investor to the registered capital of the foreign investment enterprise established after the merger or acquisition is more than 25 percent, such enterprise shall be treated as a foreign investment enterprise.

If the contribution made by a foreign investor to the registered capital of the foreign investment enterprise established after the merger or acquisition is less than 25 percent, the enterprise shall not be treated as a foreign investment enterprise, and it shall be subject to relevant provisions on contracting a foreign loan applicable to a non-foreign investment enterprise when the enterprise intends to contract a foreign loan, unless it is otherwise provided in relevant laws and regulations. The approval authority shall, when issuing the approval certificate of foreign investment enterprise (hereinafter referred to as "Approval Certificate"), indicate on the certificate the following words: "Foreign investment contribution is less than 25 percent." The registration administrative authority and the foreign exchange administrative authority shall also, when issuing the business license of foreign investment enterprise and the foreign exchange registration certificate, indicate on them the words: "Foreign investment contribution is less than 25 percent."

If any domestic company, enterprise or natural person merges its affiliated domestic company in the name of a company legally established or controlled by the aforesaid domestic company, enterprise or natural person in foreign countries or regions, the foreign investment enterprise established after the merger shall not be treated as a foreign investment enterprise, unless that the overseas company purchases any increased capital of the domestic company, or the enterprise established after the merger by the overseas company increases capital to a proportion of 25 percent of its registered capital. If the contribution made by a foreign investor other than the actual controller is more than 25 percent of the registered capital of the enterprise established according to this paragraph, the enterprise may be treated as a foreign investment enterprise.

The foreign investment enterprise established after the merger of domestic listed companies by the foreign investor shall be treated in accordance with China's relevant laws and regulations.

Article 10 For the purposes of the provisions, the approval authority in the present provisions shall refer to the Ministry of Commerce of the People's Republic of China (hereinafter referred to as "the MOFCOM") or the provincial department of commerce (hereinafter referred to as "the provincial approval authority"); the registration administrative authority shall refer to the State Administration for Industry and Commerce of the People's Republic of China (hereinafter referred to as "the SAIC") or its authorized local administration for industry and commerce; and the foreign exchange administrative authority shall refer to the State Administration of Foreign Exchange of the People's Republic of China (hereinafter referred to as "the SAFE") or its branches.

Where, in accordance with the laws, administrative regulations or departmental rules, a foreign-funded enterprise established after the merger belongs to the foreign investment enterprises of certain types or in certain industries that shall be approved by the MOFCOM, the provincial approval authority shall transfer the application documents to the MOFCOM that shall decide on whether or not to grant the approval in accordance with the law.

Article 11 If any domestic company, enterprise or natural person merges its affiliated domestic company in the name of a company legally established or controlled by the aforesaid domestic company, enterprise or natural person in foreign countries or regions, it shall be subject to the approval of the MOFCOM.

The parties thereto shall not evade the above provision by the domestic investment of a foreign investment enterprise or by any other means.

Article 12 If foreign investors merge a domestic enterprise and obtain the actual control over the enterprise, and if such merger involves any critical industry, affects or may affect the security of the national economy, or causes transference of actual control over the domestic enterprise who possesses a renowned trademark or China's time-honored brand, the parties to the merger shall apply to the MOFCOM.

Where the parties thereto fail to make an application and the merger materially affects or may materially affect the security of the national economy, the MOFCOM may, together with other relevant authorities, request the parties to stop the transaction, assign relevant equity or assets, or take any other effective actions, to eliminate the effects of the merger on the security of the national economy.

Article 13 Where a foreign investor carries out equity merger, the foreign investment enterprise established after the merger shall succeed to the claims and debts of the merged domestic company.

Where a foreign investor carries out asset merger, the domestic enterprise that sells assets shall assume its original claims and debts.

The foreign investor, the merged domestic enterprise, the creditors and other parties may reach an agreement additionally on the disposition of the claims and debts of the merged domestic enterprise, provided that the agreement shall not damage a third person's interests or public interests. The agreement on disposition of the claims and debts shall be submitted to the approval authority.

At least fifteen (15) days prior to the submission of application documents to the approval organ by the investors, the domestic enterprise that sells assets shall notify all creditors, and shall make a public announcement in a newspaper of provincial level or above circulated nationwide.

Article 14 The parties to a merger or acquisition shall determine the transaction price on the basis of the result of the evaluation of the equity interest to be transferred or of the assets to be sold conducted by the asset evaluation institution. The parties to a merger or acquisition may agree on an asset evaluation institution established within the territory of China in accordance with the law. Asset evaluation shall be conducted by adopting internationally recognized evaluation methods. It is prohibited to transfer equity interest or sell assets at a price obviously lower than the evaluation result for the purpose of transferring the capital out of China in a disguised way.

When a foreign investor merges a domestic enterprise, and thus resulting in the alteration of the equity rights formed from investment of state-owned assets or transference of the property of state-owned assets, the evaluation shall be made in accordance with the relevant provisions on the administration of state-owned assets.

Article 15 The parties to a merger shall explain whether there is relationship of affiliation among the parties. If two parties belong to an actual controller, the parties shall disclose the actual controller to the approval authority, and shall explain its purpose of merger and whether the result of evaluation is in conformity to the reasonable market value. The parties thereto shall not evade the above provision by means of trust, custody or any other means.

Article 16 A foreign investor shall, when merging a domestic enterprise to establish a foreign investment enterprise, within three (3) months as of the day when the foreign investment enterprise is issued its business license, pay all the consideration to the shareholders who transfer the equities or to the domestic enterprise which sells the assets. In case of any particular circumstance under which the period needs to be extended, the foreign investor shall, approved by the approval authority, pay 60 percent or more of the consideration within six (6) months as of the day when the foreign-funded enterprise is issued its business license, and pay all the consideration within one (1) year, and the proceeds shall be distributed according to the proportion of investments it has actually contributed.

If a foreign investor purchases the increased capital of a domestic company, the shareholders of a limited liability company or a domestic joint stock company established by sponsorship shall, when the company is applying for a business license for foreign investment enterprise, pay more than 20 percent of the increased registered capital, and the time limit for payment of remaining increased registered capital shall be subject to the provisions of the Company Law of the People's Republic of China, relevant laws and regulations on foreign investment and the Regulations of the People's Republic of China on Administration of Registration of Companies, unless it is otherwise provided in other applicable laws and administrative regulations. When a joint stock company issues new shares to increase its registered capital, the shareholders may subscribe the new shares in accordance with relevant provisions on payment of capital contribution to a newly established a joint stock company.