Laws of the People's Republic of China

The Standing Committee of the National People's Congress

Order of the President of the People's Republic of China

No.29

"Decision of the Standing Committee of the National People's Congress Regarding the Revision of Company Law of the People's Republic of China" is adopted on The 13th Session of the Standing Committee of the Ninth National People's Congress on December 25, 1999,and is promulgated. This law and decision are effective as of the same date of Promulgation.

President of the People's Republic of China: Jiang Zemin

December 25, 1999

Company Law of the People's Republic of China ContentChapter I General Provisions

Chapter II Establishment and Organizational Structure of Limited Liability Companies

Section 1 Establishment

Section 2 Organizational Structure

Section 3 Wholly State-owned Companies

Chapter III Establishment and Organizational Structure of Joint Stock Limited Companies

Section 1 Establishment

Section 2 Shareholders' General Meetings

Section 3 Board of Directors, and Manager

Section 4 Supervisory Board

Chapter IV Issue and Transfer of Shares of Joint Stock Limited Companies

Section 1 Issue of Shares

Section 2 Transfer of Shares

Section 3 Listed Companies

Chapter V Company Bonds

Chapter VI Financial Affairs and Accounting of Companies

Chapter VII Merger and Division of Companies

Chapter VIII Bankruptcy, Dissolution and Liquidation of Companies

Chapter IX Branches of Foreign Companies

Chapter X Legal Liability

Chapter XI Supplementary Provisions

Chapter I General Provisions

Article 1

This Law is formulated in accordance with the Constitution of the People's Republic of China in order to meet the needs of establishing a modern enterprise system, to standardize the organization and activities of companies, to protect the legitimate rights and interests of companies, shareholders and creditors, to maintain social and economic order and to promote the development of the socialist market economy.

Article 2

The term "company" mentioned in this Law refers to a limited liability company or a joint stock limited company incorporated within the territory of the People's Republic of China in accordance with this Law.

Article 3

A "limited liability company" or "joint stock limited company" is an enterprise legal person.

In the case of a limited liability company, shareholders shall assume liability towards the company to the extent of their respective capital contributions, and the company shall be liable for its debts to the extent of all its assets.

In the case of a joint stock limited company, its total capital shall be divided into equal shares, shareholders shall assume liability towards the company to the extent of their respective shareholdings, and the company shall be liable for its debts to the extent of all its assets.

Article 4

The shareholders of a company shall, in their capacity of contributors of capital, enjoy such rights of owners as benefiting from assets of the company, making major decisions and selecting managerial personnel in accordance with the amount of their respective capital investment in the company.

A company shall enjoy the right to the entire property of the legal person formed by the investments of the shareholders and shall possess civil rights and bear the civil liabilities in accordance with the law.

The ownership of State-owned assets in a company shall vest in the State.

Article 5

A company shall, with all its legal person assets, operate independently and be responsible for its own profits and losses according to law.

A company shall, under the macro-adjustment and control of the State, organize its production and operation independently in accordance with market demand for the purpose of raising economic benefits and labour productivity and maintaining and increasing the value of its assets.

Article 6

An internal management mechanism shall be implemented within companies, which is characterized by clear definition of powers and responsibilities, scientific management and combination of encouragement and restraint.

Article 7

State-owned enterprises restructured to form companies must transform their operating mechanism, gradually produce an inventory of their assets and verify their funds, delimit their property rights, clear off their claims and debts, evaluate their assets and establish a standard internal management mechanism in accordance with the conditions and requirements set by laws, administrative rules and regulations.

Article 8

Incorporation of limited liability companies or joint stock limited companies must meet the conditions stipulated by the present Law. Companies meeting the conditions set by this Law shall be registered as limited liability companies or joint stock limited companies; while companies failing to meet the conditions set by this Law shall not be registered as limited liability companies or joint stock limited companies.

Where laws or administrative rules and regulations provide that incorporation of companies must be subject to examination and approval, the procedures of examination and approval shall be completed according to law prior to the registration of such companies.

Article 9

A limited liability company established according to this Law must clearly indicate the words "limited liability company" in its name.

A joint stock limited company established according to this Law must clearly indicate the words "joint stock limited company" in its name.

Article 10

A company's domicile shall be the place where its main administrative organization is located.

Article 11

Articles of association must be formulated in accordance with this Law when a company is incorporated. A company's articles of association shall have binding force on the company, its shareholders, directors, supervisors and managers.

A company's scope of business shall be defined in its articles of association and registered in accordance with the law. Items within the company's "scope of business" that are subject to restrictions under laws, administrative rules and regulations shall be approved in accordance with the law.

Companies shall engage in business activities within their registered scope of business. A company may change its scope of business by amending its articles of association in accordance with statutory procedures and making such amendments registered with the Company Registration Authority.

Article 12

A company may invest in other limited liability companies or joint stock limited companies and shall assume liability towards the company so invested in to the extent of such capital contributions.

In case a company, other than an investment company or a holding company as specified by the State Council, invests in other limited liability companies or joint stock limited companies, the aggregated amount of such investments shall not exceed fifty percent of its net assets; after the initial investment, the increase therein resulting from capitalization of the profit derived from the company invested in shall not be included.

Article 13

A company may establish branches, which shall not possess the status of enterprise legal persons and whose civil liabilities shall be borne by the company.

A company may establish subsidiaries, which shall possess the status of enterprise legal perons, and shall independently bear civil liabilities according to law.

Article 14

A company must, when engaging in business activities, abide by the law, observe professional ethics, strengthen the construction of socialist culture and ideology and accept supervision of the government and the public.

The legitimate rights and interests of companies shall be protected by the law and shall be inviolable.

Article 15

Companies must protect the lawful rights and interests of their staff and workers, and strengthen labour protection so as to achieve safety in production.

Companies shall apply various forms to strengthen professional education and on-the-job training of their staff and workers so as to improve their quality.

Article 16

Company's staff and workers shall, in accordance with the law, organize a trade union to carry out the trade union activities and protect the lawful rights and interests of the staff and workers. The company shall provide its trade union with conditions necessary for carrying out its activities.

Wholly State-owned companies and limited liability companies invested in and established by two or more State-owned enterprises or by two or more other State-owned investment entities shall, through staff and workers' congresses or other forms, practice democratic management in accordance with the provisions of the Constitution and relevant laws.

Article 17

The grass-root organizations of the Communist Party of China in companies shall carry out their activities in accordance with the Constitution of the Communist Party of China.

Article 18

The present Law shall apply to limited liability companies with foreign investment. Where laws concerning Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and foreign-capital enterprises provides otherwise, such provision shall prevail.

Chapter II Establishment and Organizational Structure of Limited Liability Companies

Section 1 Establishment

Article 19

The following conditions must be fulfilled for the establishment of a limited liability company:

(1)

the number of shareholders conforms to the statutory number;

(2)

the capital contributions of the shareholders reach the statutory minimum amount of capital;

(3)

the shareholders have jointly formulated the articles of association of the company ;

(4)

the company has name and an organizational structure established in compliance with the requirements for a limited liability company; and

(5)

there are fixed premises and necessary conditions for production and operation.

Article 20

A limited liability company shall be jointly invested in and incorporated by not less than two and not more than fifty shareholders.

State-authorized investment institutions or departments authorized by the State may independently invest in and establish wholly State-owned limited liability companies.

Article 21

If State-owned enterprises established prior to the implementation of this Law comply with the conditions stipulated in this Law for the establishment of limited liability companies, they may, in the case of enterprises with a single investing entity, be restructured as wholly State-owned limited liability companies in accordance with this Law, or in the case of enterprises with multiple investing entities, be restructured as limited liability companies as specified in the first paragraph of the preceding Article.

The implementation procedures and specific measures for restructuring State-owned enterprises as companies shall be formulated separately by the State Council.

Article 22

The articles of association of limited liability companies shall specify the following particulars:

(1)

the name and domicile of the company;

(2)

the scope of business of the company;

(3)

the registered capital of the company;

(4)

the names or titles of the shareholders;

(5)

the rights and obligations of the shareholders;

(6)

the method and amount of capital contributions by the shareholders;

(7)

the conditions for transfer of capital contributions by shareholders;

(8)

the organization of the company, its method of creation, functions and powers and the rules of procedure;

(9)

the legal representative of the company;

(10)

the reasons for dissolution of the company and method of liquidation; and

(11)

other items which the shareholders deem necessary to be specified.

The shareholders shall sign and affix their seals to the company's articles of association.

Article 23

The registered capital of a limited liability company shall be the amount of the paid-up capital contributions of all its shareholders as registered with the Company Registration Authority.

The registered capital of a limited liability company shall be no less than the following minima:

(1)

RMB 500,000 yuan for a company engaged mainly in production and operation;

(2)

RMB 500,000 yuan for a company engaged mainly in commodity wholesale;

(3)

RMB 300,000 yuan for a company engaged mainly in commercial retailing; and

(4)

RMB 100,000 yuan for a company engaged in science and technology development, consultancy or services.

Article 24

A shareholder may make its capital contributions to a company in currency or by contributing material objects, industrial property rights, non-patented technology and land use rights at their appraised value. The material objects, industrial property rights, non-patented technology or land use rights to be contributed as capital must undergo an asset valuation and verification, and shall not be overvalued or undervalued. The appraisal and valuation of land use rights shall be handled in accordance with the laws and administrative rules and regulations.

The investment in the form of industrial property rights and non-patented technology at their appraised value shall not exceed twenty percent of the registered capital of a limited liability company, except where special State regulations in respect of the application of high and new technological achievement provide otherwise.

Article 25

Each shareholder shall make in full the amount of the capital contribution subscribed for under the articles of association of the company. Where a shareholder makes its capital contribution in currency, it shall deposit the full amount of such capital contribution in currency in the interim bank account opened by the limited liability company to be established. Where a shareholder makes its capital contribution in the form of material objects, industrial property rights, non-patented technology or land use rights, the transfer procedures for the property rights shall be handled in accordance with the law.

Shareholders failing to make the capital contributions they subscribed for in accordance with the preceding paragraph shall be liable for breach of contract towards the shareholders who have made in full their capital contributions.

Article 26

After all shareholders have made their capital contributions in full, such contributions must be verified by a statutory capital verification institution which shall issue capital verification certificates.

Article 27

After the total capital contributions of the shareholders have been verified by a statutory capital verification institution, application shall be made to the Company Registration Authority for registration of the establishment of the company by a representative designated by all the shareholders or by an agent jointly entrusted by them, who shall submit such documents as an application for registration, the articles of association and the capital verification certificate.

Where the examination and approval of the relevant authorities is required by the laws or administrative rules and regulations, the approval documents shall be submitted on application for registration of establishment.

The Company Registration Authority shall grant registration and issue a business licence to a company that meets the requirements stipulated in this Law; the Company Registration Authority shall not register a company failing to meet the requirements stipulated in this Law.

The date of the issuance of the company business license shall be the date of the establishment of a limited liability company.

Article 28

Where, after the establishment of a limited liability company, it is discovered that the actual value of the material objects, industrial property rights, non-patented technology or land use rights contributed as capital is notably less than the value stated in the articles of association, the shareholders that made such contributions shall make up the discrepancy. Those who are shareholders at the time of the establishment of the company shall bear joint and several liability therefor.

Article 29

Where branches are established simultaneously with the establishment of a limited liability company, application for registration of the branches established shall be made to, and business licences obtained from the Company Registration Authority.

Where a limited liability company establishes branches after its establishment, the company's legal representative shall apply for the registration to, and obtain business licences from the Company Registration Authority.

Article 30

After a limited liability company has been incorporated, it shall issue capital contribution certificates to its shareholders.

A capital contribution certificate shall specify the following items:

(1)

the name of the company;

(2)

the registration date of the company;

(3)

the registered capital of the company;

(4)

the name or title of the shareholder, the amount and date of its capital contribution; and

(5)

the serial number of the capital contribution certificate and the date of its verification and issuance.

A capital contribution certificate shall bear the seal of the company on it.

Article 31

A limited liability company shall prepare a roster of its shareholders with the following items therein:

(1)

the names or titles and domiciles of the shareholders;

(2)

the amounts of capital contributions of the shareholders; and

(3)

the serial numbers of the capital contribution certificates.

Article 32

A shareholder shall have the right to look up the minutes of shareholders' meetings and the financial and accounting reports of the company.

Article 33

Shareholders shall draw dividends in proportion to their capital contributions. Where a company increases capital, the existing shareholders shall have priority in subscription for new shares.

Article 34

Once a company is registered, its shareholders may not withdraw their capital contributions.

Article 35

The shareholders of a company may assign among themselves all or part of their capital contributions.

Where a shareholder intends to assign its capital contribution to persons who are not shareholders, the consent of over half of all the shareholders must be secured. Those shareholders disapproving the assignment shall purchase the capital contribution to be assigned. If such shareholders do not make the purchase, they shall be deemed to have consented to the assignment.

Other shareholders shall, under identical terms, have priority in purchasing the capital contribution to be assigned with the consent of the shareholders.

Article 36

After a shareholder has assigned its capital contribution according to law, the company shall record the name or title and domicile of the consignee and the amount of the capital contribution assigned in the roster of the shareholders.

Section 2 Organizational Structure

Article 37

The shareholders' meeting of a limited liability company shall be composed of all the shareholders. The shareholders' meeting shall be the organ of power of the company and shall exercise its functions and powers in accordance with this Law.

Article 38

The shareholders' meeting shall exercise the following functions and powers:

(1)

to decide on the business policy and investment plan of the company;

(2)

to elect and recall members of the board of directors and to decide on matters concerning the remuneration of directors;

(3)

to elect and recall supervisors appointed from among the shareholders' representatives, and to decide on matters concerning the remuneration of supervisors;

(4)

to examine and approve reports of the board of directors;

(5)

to examine and approve reports of the supervisory board or supervisors;

(6)

to examine and approve the annual financial budget plan and final accounts plan of the company;

(7)

to examine and approve plans for profit distribution of the company and plans for making up losses;

(8)

to adopt resolutions on the increase or reduction of the registered capital of the company;

(9)

to adopt resolutions on the issuance of company bonds;

(10)

to adopt resolutions on the assignment of capital contribution by a shareholder to a person other than the shareholders;

(11)

to adopt resolutions on matters such as the merger, division, transformation, dissolution and liquidation of the company; and

(12)

to amend the articles of association of the company.

Article 39

The rules of deliberation and voting procedures of the shareholders' meeting shall, except where provided for by this Law, be stipulated by the articles of association of the company.

Resolutions of the shareholders' meeting on the increase or reduction of the registered capital, the division, merger, dissolution, or transformation of the company must be adopted by shareholders of the company representing two-thirds or more of the voting rights.

Article 40

A company may amend its articles of association. A resolution on the amendment of the articles of association must be adopted by shareholders of the company representing two-thirds or more of the voting rights.

Article 41

Shareholders shall exercise their voting rights at the shareholders' meeting in proportion to their capital contributions.

Article 42

The first meeting of the shareholders of a company shall be convened and presided over by the shareholder who has made the biggest capital contribution to the company and shall exercise its functions and powers in accordance with this Law.

Article 43

Shareholders' meetings shall be divided into regular meetings and interim meetings.

Regular shareholders' meetings shall be convened on time as stipulated by the articles of association of the company. Interim shareholders' meetings may be convened upon proposal made by shareholders representing one-fourth or more of the voting rights, or, by one-third or more of directors or supervisors.

Where a limited liability company has set up a board of directors, its shareholders' meetings shall be convened by the board of directors and presided over by the chairman of the board. Where special circumstances preclude the chairman of the board from performing his function, the meeting shall be presided over by a vice-chairman or a director of the board designated by the chairman.

Article 44

All shareholders shall be notified fifteen days prior to the convening of a shareholders' meeting.

The shareholders' meeting shall keep minutes of their decisions on matters discussed at it; the shareholders present at the meeting shall sign the minutes.

Article 45

A limited liability company shall have a board of directors, which shall be composed of three to thirteen members.

The members of the board of directors of a limited liability company invested in and established by two or more State-owned enterprises, or by two or more other State-owned investment entities shall include representatives of the staff and workers of the company. Such representatives of the staff and workers shall be democratically elected by the staff and workers of the company.

A board of directors shall have a chairman and one or two vice-chairmen. The method for the creation of the chairman and vice-chairmen shall be stipulated in the articles of association of the company.

The chairman of the board of directors shall be the company's legal representative.

Article 46

The board of directors shall be responsible to the shareholders' meeting, and exercise the following functions and powers:

(1)

to be responsible for convening shareholders' meetings and to report on its work to the shareholders' meetings;

(2)

to implement the resolutions of the shareholders' meetings;

(3)

to decide on the business's plans and investment plans of the company;

(4)

to formulate the annual financial budget plan and final accounts plan of the company;

(5)

to formulate plans for profit distribution and plans for making up losses of the company;

(6)

to formulate plans for the increase or reduction of the registered capital of the company;

(7)

to formulate plans for the merger, division, transformation and dissolution of the company;

(8)

to decide on the establishment of the company's internal management organs;

(9)

to appoint or dismiss the company's manager (general manager) (hereinafter referred to as "manager"), and, upon recommendation of the manager, to appoint and dismiss the company's deputy manager(s) and persons in charge of the financial affairs of the company, and to decide on matters concerning their remuneration; and

(10)

to formulate the basic management system of the company.

Article 47

The term of office of directors shall be stipulated by the articles of association of the company but may not exceed three years. A director may, if reelected upon expiration of his term of office, serve consecutive terms.

The shareholders' meeting of a company may not unwarrantedly dismiss a director of the board prior to the expiration of his term of office.

Article 48

Meetings of the board of directors shall be convened and presided over by the chairman of the board. Where special circumstances preclude the chairman from performing his function, the meeting shall be convened and presided over by a vice-chairman or a director of the board designated by the chairman. One-third or more of the members of the board of directors may propose the convening of a meeting of the board of directors.

Article 49

The rules of deliberation and voting procedures of the board of directors shall, except where provided for by this Law, be stipulated by the articles of association of the company.

All directors shall be notified ten days prior to the convening of a board meeting.

The board meeting shall keep minutes of decisions on matters discussed at it; directors present at the meeting shall sign the minutes.

Article 50

A limited liability company shall have a manager, who shall be appointed or dismissed by the board of directors. The manager shall be responsible to the board of directors and shall exercise the following functions and powers:

(1)

to be in charge of the production, operation and management of the company, and to organize the implementation of the resolutions of the board of directors;

(2)

to organize the implementation of the annual business plans and investment plans of the company;

(3)

to draw up plans on the establishment of the internal management organs of the company;

(4)

to draw up the basic management system of the company;

(5)

to formulate specific rules and regulations of the company;

(6)

to recommend the appointment or dismissal of the deputy manager(s) and of persons in charge of the financial affairs of the company;

(7)

to appoint or dismiss management personnel other than those to be appointed or dismissed by the board of directors; and

(8)

other functions and powers granted by the articles of association of the company and the board of directors.

The manager shall attend meetings of the board of directors as a non-voting attendant.

Article 51

Where a limited liability company has a small number of shareholders and is comparatively small in scale, it may have an executive director instead of a board of directors. The executive director may concurrently serve as the manager of the company.

The powers and functions of the executive director shall be stipulated by the articles of association of the company with reference to Article 46 of this Law.

Where a limited liability company does not have a board of directors, the executive director shall be the legal representative of the company.

Article 52

A limited liability company with a relatively large-scale business shall have a supervisory board composed of no less than three members. The supervisory board shall elect a convener from among its members.

The supervisory board shall be composed of representatives of the shareholders and an appropriate proportion of the staff and workers of the company. The exact proportion shall be stipulated in the articles of association. The representatives of the staff and workers in the supervisory board shall be democratically elected by the staff and workers of the company.

Where a limited liability company has a small number of shareholders and is comparatively small in scale, it may have one or two supervisors.

Directors, the manager or personnel in charge of financial affairs of the company may not concurrently serve as supervisors.

Article 53

The term of office of a supervisor shall be three years. A supervisor may, if reelected upon expiration of his term of office, serve consecutive terms.

Article 54

The supervisory board or the supervisors shall exercise the following functions and powers:

(1)

to examine the financial affairs of the company;

(2)

to supervise the acts of the directors and the manager violating the laws, administrative rules and regulations or the articles of association of the company during the performance of their functions;

(3)

to demand directors and the manager to make corrections if any of their acts is found to have damaged the interests of the company;

(4)

to propose the convening of interim shareholders' meetings; and

(5)

other functions and powers as stipulated in the articles of association of the company.

The supervisors shall attend meetings of the board of directors as non-voting participants.

Article 55

A company shall, in studying and deciding on issues involving the personal interests of its staff and workers such as their salaries, welfare, safety in production, labour protection and labour insurance, solicit in advance the opinions of the trade union and the staff and workers of the company. And representatives of the trade union or of the staff and workers shall be invited to attend relevant meetings as non-voting participants.

Article 56

A company shall solicit the opinions and suggestions of the trade union and the staff and workers of the company when studying and deciding on major issues concerning production and operation, and formulating important rules and regulations.

Article 57

None of the following persons may hold the position of director, supervisor or manager of a company:

(1)

a person without capacity or with restricted capacity for civil acts;

(2)

a person who was sentenced to criminal punishment for the crime of embezzlement, bribery, seizure of property or misappropriation of property or for undermining the social economic order, where not more than five years have elapsed since the expiration of the enforcement period; or a person who, was deprived of his political rights for committing a crime, where not more than five years have elapsed since the expiration of the enforcement period;

(3)

a director, or factory head or manager who was personally responsible for the bankruptcy liquidation of the company or enterprise due to mismanagement, where not more than three years have elapsed since the date of completion of the bankruptcy liquidation;

(4)

a legal representative of the company or enterprise that had the business license revoked for violating the law, where such representative bear individual liability therefor and not more than three years have elapsed since the date of revocation of the business license; and

(5)

a person with relatively large amount of personal debts that have fallen due but haven't been settled.

Where a company elects or appoints a director or supervisor or engages the manager in violation of the preceding paragraph, such election, appointment or engagement shall be invalid.

Article 58

Government functionaries may not concurrently serve as directors, supervisors or managers of companies.

Article 59

Directors, supervisors and the manager of a company shall comply with the articles of association of the company, faithfully perform their duties and maintain the interests of the company and shall not take advantage of their position, functions and powers in the company to seek personal gains.

Directors, supervisors and the manager of a company shall not, by taking advantage of their functions and powers, accept bribes or other unlawful incomes, nor may they misappropriate the property of the company.

Article 60

Directors and the manager of a company shall not misappropriate company funds or lend company funds to others.

Directors and the manager shall not deposit company assets in their own personal accounts or in personal accounts of other individuals.

Directors and the manager shall not use company assets as security for the personal debts of shareholders of the company or of other individuals.

Article 61

Directors and the manager shall not operate their own in or operate for others the same category of business as the company they are serving or, engage in activities which damage the interests of the company. If a director or the manager engages in such business or activities, the incomes derived therefrom shall belong to the company.

Directors and the manager shall not enter into contracts or conduct transactions with the company except as provided for in the articles of association or approved by the shareholders' meeting.

Article 62

Directors, supervisors and the manager shall not disclose any company secrets except as provided for by the law or approved by the shareholders' meeting.

Article 63

Directors, supervisors and the manager shall be liable for compensation, if they violate the laws, administrative rules and regulations or the articles of association in performance of their duties and thus cause damage to the company.

Section 3 Wholly State-owned Companies

Article 64

A wholly State-owned company mentioned in this Law means a limited liability company invested in and established solely by the State-authorized investment institution or a department authorized by the State.

Companies which manufacture special products as determined by the State Council or companies that belong to the category of specialized trades shall adopt the form of wholly State-owned companies.

Article 65

The articles of association of a wholly State-owned company shall be formulated by the State-authorized investment institution or a department authorized by the State in accordance with this Law, or be formulated by the board of directors of the company and submitted for the approval of the relevant State-authorized investment institution or the department authorized by the State.

Article 66

A wholly State-owned company shall not have a shareholders' meeting. The State-authorized investment institution or the department authorized by the State shall authorize the board of directors of the company to exercise part of the functions and powers of the shareholders meeting and to make decisions on important matters of the company. However, the merger, division, dissolution, increase and reduction of capital, and issuance of company bonds must be decided by the State-authorized investment institution or by the department authorized by the State.

Article 67

The supervisory board of a wholly state-owned company is composed of the staff appointed by the State Council or the organs and departments authorized by the State Council, and it includes the participation of representatives of the staff and workers of the company. A supervisory board is composed of no less than three members. A supervisory board shall exercise the functions and powers provided by the first and second items of paragraph 1 of Article 54 of this Law and other functions and powers provided by the State Council".

"Supervisors shall attend the meeting of a supervisory board as non-voting participants".

"Directors, managers and responsible persons in charge of the financial affairs of the company may not serve concurrently as supervisors".

Article 68

A wholly State-owned company shall have a board of directors, which shall exercise its functions and powers in accordance with the provisions of Article 46 and Article 66 of this Law. Each term of office of the board of directors shall be three years.

The board of directors shall be composed of three to nine members, who shall be appointed and replaced by the State-authorized investment institution or by the department authorized by the State in accordance with the term of office of the board of directors. The board of directors shall include representatives of the staff and workers of the company. The representatives of the staff and workers on the board of directors shall be democratically elected by the staff and workers of the company.

The board of directors shall have a chairman and may have a vice-chairman, if necessary. The chairman and vice-chairman shall be designated by the State-authorized investment institution or the department authorized by the State from among members of the board of directors.

The chairman of the board of directors shall be the legal representative of the company.

Article 69

A wholly State-owned company shall have a manager, who shall be engaged and dismissed by the board of directors. The manager shall exercise his functions and powers in accordance with the provisions of Article 50 of this Law.

A member of the board of directors may, subject to the consent of the State-authorized investment institution or the department authorized by the State, serve concurrently as manager.

Article 70

The chairman, vice-chairman and directors of the board, or the manager of a wholly State-owned company may not, without the consent of the State-authorized investment institution or the department authorized by the State, serve concurrently as responsible persons in other limited liability companies, joint-stock limited companies or other business organizations.

Article 71

Where a wholly State-owned company transfers its assets, the procedures for examination and approval, and the transfer of property rights shall be handled by the State-authorized investment institution or the department authorized by the State in accordance with the laws and administrative rules and regulations.

Article 72

Large-sized wholly Stated-owned companies with a sound business management system and relatively successful operations may be authorized by the State Council to exercise the rights of asset owners.

Chapter III Establishment and Organizational Structure of Joint Stock Limited Companies

Section 1 Establishment

Article 73

To incorporate a joint stock limited company, the following conditions must be satisfied:

(1)

the number of sponsors shall conform to the statutory number;

(2)

the share capital subscribed for by the sponsors and raised from the general public shall reach the statutory minimum amount of capital;

(3)

the issuance of shares and preparations for establishment shall be in conformity with the provisions of the law;

(4)

the articles of association of the company shall be formulated by the sponsors and adopted at the inaugural meeting;

(5)

the company shall have a name and an organizational structure required for the establishment of a joint stock limited company; and

(6)

the company shall have a fixed site and the necessary conditions for production and operation.

Article 74

Joint stock limited companies may be incorporated by means of sponsorship or by means of share offer.

"Establishment by means of sponsorship" means establishment of a company by means of subscription by the sponsors for all the shares to be issued by the company.

"Establishment by means of share offer" means establishment of a company by means of subscription by the sponsors for a portion of the shares to be issued by the company and offer of the rest to the general public.

Article 75

To incorporate a joint stock limited company, there shall be five or more sponsors, of which more than half must have their domicile within the territory of the People's Republic of China.

Where a State-owned enterprise is restructured as a joint stock limited company, there may be less than five sponsors, however, such a company shall be incorporated by means of share offer.

Article 76

The sponsors of a joint stock limited company must subscribe in accordance with this Law for the shares to be subscribed for by them, and shall undertake the matters concerning the preparation for the establishment of the company.

Article 77

The establishment of a joint stock limited company must be subject to the approval of a department authorized by the State Council or of a people's government at the provincial level.

Article 78

The registered capital of a joint stock limited company shall be the total amount of paid-up share capital as registered with the Company Registration Authority.

The minimum registered capital of a joint stock limited company shall be RMB 10,000,000 yuan. If the minimum registered capital of a joint stock limited company needs to be higher than the aforesaid amount, it shall be stipulated separately by the laws, or administrative rules and regulations.

Article 79

The articles of association of a joint stock limited company shall specify the following items:

(1)

the name and domicile of the company;

(2)

the scope of business of the company;

(3)

the method of establishment of the company;

(4)

the total number of shares, the amount of each share and the registered capital of the company;

(5)

the names or titles of the sponsors and the numbers of shares subscribed for by the sponsors;

(6)

the rights and obligations of the shareholders;

(7)

the composition, functions and powers, the term of office and the deliberation rules of the board of directors;

(8)

the legal representative of the company;

(9)

the composition, functions and powers, the term of office and the deliberation rules of the supervisory board;

(10)

methods for the distribution of the company's profit;

(11)

the reasons for dissolution of the company and liquidation method;

(12)

methods for notices and announcements of the company; and

(13)

other matters that the shareholders' general meeting deems necessary to be specified.

Article 80

The sponsors may make their capital contributions in cash, or with material objects, industrial property rights, non-patented technology or land use rights at their appraised value. Material objects, industrial property rights, non-patented technology or land use rights contributed as capital must be appraised and valued, and such property must be verified and converted into shares. Such contributions may not be over-valued or under-valued. The appraisal and valuation of land use rights shall be conducted in accordance with the provisions of the laws, administrative rules and regulations.

The amount of capital contributions made by sponsors in the form of industrial property rights and non-patented technology shall not exceed twenty percent of the registered capital of a joint stock limited company.

Article 81

Where a State-owned enterprise is restructured as a joint stock limited company, it shall be strictly prohibited to convert the State-owned assets into shares at a depressed price or to sell off them at a depressed price, or to distribute them to individuals without charge.

Article 82

Where a joint stock limited company is incorporated by means of sponsorship, the sponsors shall pay in full for their shares immediately after confirming in writing their subscription of the shares to be issued according to the articles of association of the company. If material objects, industrial property rights, non-patented technology or land use rights are invested as payment for shares, the sponsors shall undertake the transfer procedures for property rights therein in accordance with the law.

After the sponsors make their capital contributions in full, they shall elect the board of directors and supervisory board. The board of directors shall submit to the Company Registration Authority the documents such as approval document for the company's establishment, articles of association and capital verification certificate of the company, and shall apply for registration of establishment.

Article 83

Where a joint stock limited company is incorporated by means of share offer, the sponsors shall not subscribe for less than thirty five percent of the total shares issued by the company, and the remaining shares shall be offered to the general public.

Article 84

When offering shares to the general public for subscription, the sponsors must submit to the department of security administration under the State Council an application for share offer along with the following main documents:

(1)

the approval documents for the establishment of the company;

(2)

the articles of association of the company;

(3)

a business forecast;

(4)

the names or titles of the sponsors, the number of shares subscribed for by the sponsors, the forms of capital contributions and the capital verification certificate;

(5)

the prospectus on share offer;

(6)

the name and address of the bank accepting subscription money on behalf of the company; and

(7)

the name of the selling agencies and related agreements.

The sponsors shall not offer shares to the general public without the approval of the securities administrative department under the State Council.

Article 85

A joint stock limited company may, with the approval of the department of security administration under the State Council, offer its shares to the general public outside the territory of the People's Republic of China. The specific measures therefor shall be specially stipulated by the State Council.

Article 86

The department of security administration under the State Council shall approve the applications for share offer which conform to the stipulations of this Law, and disapprove the applications which fail to conform to the stipulations of this Law.

If an approval is found to be inconsistent with the stipulations of this Law after it has been granted, such approval shall be revoked. If the share offer has not yet been made, the offer shall be halted; if the share offer has already been made, the subscribers may claim a refund from the sponsors according to their paid-up subscriptions plus bank deposit interest calculated for the same period.

Article 87

A prospectus on share offer shall have the articles of association of the company formulated by the sponsors attached, and shall specify the following:

(1)

the number of shares subscribed for by the sponsors;

(2)

the face value and the issue price of each share;

(3)

the total number of bearer shares issued;

(4)

the rights and obligations of the subscribers; and

(5)

the term of the share offer and a statement to the effect that subscribers may withdraw their share subscriptions if all the shares are not taken up within the time limit.

Article 88

Where shares are to be offered to the general public, the sponsors must publish the company's prospectus on share offer and prepare subscription forms. The subscription forms shall contain the items listed in the preceding Article, and the subscribers shall fill in the number of shares subscribed for, the amount of money contributed to, and their respective domiciles on the forms, and shall sign and seal such forms. The subscribers shall pay their subscription money in accordance with the number of shares subscribed for.

Article 89

When sponsors offer shares to the public, the shares shall be distributed by a securities agency established according to law, with which a distribution agreement shall be concluded.

Article 90

Where shares are to be offered to the public, the sponsors shall enter into an agreement with a bank on the collection of subscription money on behalf of the company.

The bank entrusted with collecting the subscription money shall, in accordance with its agreement, collect and keep the subscription money, issue receipts to the subscribers for their payments, and bear an obligation to issue certification of receipt of subscription money to the relevant departments.

Article 91

After payment in full of the subscription money for all shares is made, a statutory capital verification institution shall be commissioned to conduct a verification of the funds and produce a verification certificate. The sponsors shall, within thirty days thereafter, convene and preside over an inaugural meeting composed of all the subscribers.

If the number of shares has not been fully subscribed for within the time limit specified in the prospectus on share offer or, after payment in full of the subscription money for the total share is made, or if sponsors fail to hold an inaugural meeting within thirty days thereafter, the subscribers may claim a refund from the sponsors according to the paid-up share subscription money plus bank deposit interest calculated for the same period.

Article 92

The sponsors shall notify each subscriber of the date of the inaugural meeting or make a public announcement 15 days prior to the convening of the meeting. The inaugural meeting may be convened only if subscribers representing fifty percent or more of the total shares issued are present.

The following functions and powers shall be exercised at an inaugural meeting:

(1)

to examine the sponsors' report on the preparation for the establishment of the company;

(2)

to adopt the articles of association of the company;

(3)

to elect members of the board of directors;

(4)

to elect members of the supervisory board;

(5)

to examine and verify the expenses incurred in the establishment of the company;

(6)

to examine and verify the valuation of the property used by the sponsors to pay for subscription money; and

(7)

to resolve not to incorporate the company in the event that a force majeure or major changes in business operation conditions may directly affect the establishment of the company.

The resolution made at the inaugural meeting on the issues listed in the preceding paragraph must be approved by subscribers attending the meeting who represent more than half of the voting rights.

Article 93

Sponsors and subscribers may not withdraw their share capital after paying their subscription money or making their capital contributions as substitutes for subscription money, except where the total share issue is not fully subscribed for within the time limit or the sponsors fail to convene the inaugural meeting according to the schedule, or the inaugural meeting resolves not to incorporate the company.

Article 94

The board of directors shall, within thirty days after the inaugural meeting, submit the following documents to the Company Registration Authority and apply for registration of the establishment of the company:

(1)

the approval documents issued by the relevant department in charge;

(2)

the minutes of the inaugural meeting;

(3)

the articles of association of the company;

(4)

the financial audit report on the preparation of the establishment of the company;

(5)

the capital verification certificate;

(6)

the names and domiciles of the members of the board of directors and the supervisory board; and

(7)

the name and domicile of the legal representative.

Article 95

The Company Registration Authority shall, within thirty days after receipt of an application for the establishment of a joint stock limited company, make a decision whether or not to register the company. A company complying with the provisions of this Law shall be registered and a company business licence shall be issued thereto. A company failing to comply with the provisions of this Law shall not be registered.

The date of issuance of a company business licence shall be the date of the establishment of the company. Once a company is incorporated, an announcement shall be made.

A joint stock limited company incorporated by means of share offer shall, after its registration for establishment, report its share subscription to the department of security administration under the State Council for the record.

Article 96

Where branches are established simultaneously with the establishment of a joint stock limited company, the company shall submit applications for registration of the establishment of the branches to, and obtain business licenses of the branches from, the Company Registration Authority.

Where branches are established after the establishment of a joint stock limited company, the legal representative of the company shall submit applications for registration of the branches to, and obtain business licences of the branches from, the Company Registration Authority.

Article 97

The sponsors of a joint stock limited company shall bear the following responsibilities:

(1)

in the event of the company failing to be incorporated, joint and several liabilities for all debts and expenses incurred in the act of the establishment;

(2)

in the event of the company failing to be incorporated, joint and several liabilities for refunding to the subscribers the paid-up subscription money plus bank deposit interest calculated for the same period of time; and

(3)

in the event of the interests of the company being damaged during the course of its establishment due to fault of the sponsors, liability for compensation to the company.

Article 98

If a limited liability company is to be converted into a joint stock limited company, it shall satisfy the requirements for a joint stock limited company stipulated by this Law and the conversion shall be handled in accordance with the procedures stipulated in this Law for the establishment of a joint stock limited company.

Article 99

Where a limited liability company is, after approval, converted into a joint stock limited company in accordance with the law, the total amount of its shares converted shall be equal to the amount of its net assets. Where a limited liability company that is, after approval, converted into a joint stock limited company in accordance with the law offers shares to the general public for the purpose of increasing its capital, it shall be handled in accordance with the provisions of this Law in respect of the share offers to the public.

Article 100

Where a limited liability company is converted into a joint stock limited company in accordance with the law, the claims and debts of the original limited liability company shall be succeeded to by the joint stock limited company into which it is converted.

Article 101

A joint stock limited company shall keep its articles of association, roster of the shareholders, minutes of the shareholders' general meetings and financial and accounting statements at the company.

Section 2 Shareholders' General Meetings

Article 102

A joint stock limited company shall form a shareholders' general meeting which shall be composed of all the shareholders. The shareholders' general meeting is the organ of power of the company and shall exercise its functions and powers in accordance with this Law.

Article 103

The shareholders' general meeting shall exercise the following functions and powers:

(1)

to decide upon policies on business operation and investment plans of the company;

(2)

to elect and replace members of the board of directors and to decide upon matters concerning the remuneration of the directors;

(3)

to elect and replace the supervisors who are representatives of the shareholders and to decide upon matters concerning the remuneration of the supervisors;

(4)

to examine and approve reports of the board of directors;

(5)

to examine and approve reports of the supervisory board;

(6)

to examine and approve plans of the company's fiscal financial budget and final accounts;

(7)

to examine and approve plans for company's profit distribution and making up losses;

(8)

to make resolutions on the increase or reduction of the registered capital of the company;

(9)

to adopt resolutions on the issuance of company bonds;

(10)

to adopt resolutions on matters such as the merger, division, dissolution and liquidation of the company; and

(11)

to amend the articles of association of the company.

Article 104

The annual meeting of the shareholders' general meeting shall be convened once a year. An interim shareholders' general meeting shall be convened within two months if any of the following situations occurs:

(1)

if the number of directors is less than the number as stipulated by this Law, or less thirds of the number required by the articles of association of the company;

(2)

if the amount of the company's losses that have not been made up reaches one-third of its total share capital;

(3)

if shareholders holding ten percent or more of the company's shares request to convene a shareholders' meeting;

(4)

if the board of directors deems it necessary; and

(5)

if the supervisory board proposes that such a meeting be convened.

Article 105

A shareholders' general meeting shall be convened by the board of directors in accordance with the provisions of this Law and presided over by the Chairman of the board. Where the Chairman is unable to perform his duties due to special reasons, the vice-chairman or other director designated by the Chairman may preside over such meetings. Shareholders shall be notified of the matters to be considered at a shareholders general meeting thirty days prior to the holding of such a meeting. At interim shareholders' general meetings, no resolutions may be adopted in respect of matters not included in the notice.

Where bearer shares are to be issued, a public announcement shall be made in respect of the matters mentioned in the preceding paragraph forty-five days prior to the holding of such a meeting.

Holders of bearer shares attending the shareholders' general meeting shall deposit their share certificates with the company for the period from five days prior to the holding of the meeting until the end of the meeting.

Article 106

Shareholders attending a shareholders' general meeting shall have the right to one vote for each share held.

A resolution of the shareholders general meeting must be passed by more than one half of the voting rights held by the shareholders present at the meeting. Resolutions on the merger, division or dissolution of the company adopted by the shareholders' general meeting must require more than two-thirds of the voting rights held by the shareholders present at the meeting.

Article 107

Amendments to the articles of association of the company must be adopted by more than two-thirds of the voting rights held by the shareholders present at the shareholders' general meeting.

Article 108

A shareholder may entrust a proxy to attend the shareholders' general meeting on his behalf. The proxy shall present the shareholders' power of attorney to the company and exercise voting rights within the scope of authorization.

Article 109

Resolutions on matters discussed at a shareholders' general meeting shall be minuted down. The directors attending the meeting shall sign the minutes. The minutes of the meeting shall be kept together with the roster of the signatures of the shareholders attending the meeting and the powers of attorney of attending proxies.

Article 110

Shareholders shall have the right to examine the articles of association of the company, the minutes of the shareholders' general meetings and the financial and accounting statements, and to make suggestions or inquiries about the business operation of the company.

Article 111

Where a resolution of the shareholders' general meeting or of the board of directors violates the law or administrative rules and regulations or infringes the lawful rights and interests of the shareholders, the shareholders concerned shall have the right to bring a lawsuit in a people's court demanding that such illegal or infringing action be stopped.

Section 3 Board of Directors, and Manager

Article 112

A joint stock limited company shall have a board of directors composed of five to nineteen members.

The board of directors shall be responsible to the shareholders' general meeting and exercise the following functions and powers:

(1)

to convene the shareholders' general meeting and to report on its work to the shareholders' general meeting;

(2)

to implement resolutions passed at the shareholders' general meetings;

(3)

to decide on the business operation plans and the investment plans of the company;

(4)

to formulate the fiscal financial budgets and the final accounts of the company;

(5)

to formulate plans for the profit distribution and making up losses of the company;

(6)

to formulate plans for increasing or reducing the registered capital of the company and plans for the issue of company bonds;

(7)

to formulate plans for the merger, division and dissolution of the company;

(8)

to decide on the establishment of the internal management organs of the company;

(9)

to engage or dismiss the manager and, upon recommendation of the manager, to engage or dismiss the deputy manager(s) and responsible persons in charge of the financial affairs of the company, and to decide on matters concerning their remuneration; and

(10)

to formulate the basic management system of the company.

Article 113

The board of directors shall have one chairman and may have one or two vice-chairmen. The chairman and vice-chairmen of the board of directors shall be elected by the affirmative votes of more than half of all the directors.

The chairman of the board shall be the legal representative of the company.

Article 114

The chairman of the board shall exercise the following functions and powers:

(1)

to preside over shareholders' general meetings, and to convene and preside over meetings of the board of directors;

(2)

to examine the implementation of resolutions of the board of directors; and

(3)

to sign the shares and the bonds of the company.

The vice-chairmen of the board shall assist the chairman of the board in his work and shall, upon designation by the chairman, exercise the chairman's powers and functions on behalf of the chairman of the board in case the chairman is unable to perform his powers and functions.

Article 115

The term of office of the directors shall be stipulated in the articles of association of the company, but each term shall not exceed three years. A director may serve consecutive terms if reelected upon expiration of his term of office.

The shareholders' general meeting may not without reason remove a director from office before the expiration of his term of office.

Article 116

Meetings of the board of directors shall be held at least twice a year. All the members of the board shall be notified of the meeting ten days prior to the holding of the meeting.

The notification method and time limit for giving notice of the convening of the interim meetings of the board of directors may be separately decided.

Article 117

A meeting of the board of directors shall be convened only if more than one half of all the directors are present. Any resolution of the board must be adopted by the affirmative votes of more than one half of all the directors.

Article 118

Meetings of the board of directors shall be attended by the directors in person. If a director is unable to attend a meeting of the board for certain reasons, he may entrust another director in writing with attending the meeting on his behalf. The power of attorney shall define the scope of authorization.

Decisions on matters discussed at a meeting of the board of directors shall be minuted. Such minutes of the meeting shall be signed by the directors and clerks present.

Directors shall be responsible for resolutions passed by the board of directors. If a resolution of the board violates the law, administrative rules and regulations or the articles of association of the company and thus causes serious losses to the company, the directors who participated in the adoption of such a resolution shall be liable for compensation to the company. However, if a director is proved to have expressed his objection to such a resolution when it was put to the vote and his objection was recorded in the minutes of the meeting, he may be exempted from such liability.

Article 119

A joint stock limited company shall have a manager, who shall be engaged or dismissed by the board of directors. The manager shall be responsible to the board of directors and shall exercise the following functions and powers:

(1)

to be in charge of the production, operation and management of the company and to organize the implementation of resolutions of the board of directors;

(2)

to organize the implementation of the annual business plans and investment plans of the company;

(3)

to draft plans for the establishment of internal management organs of the company;

(4)

to draft the basic management system of the company;

(5)

to formulate specific rules and regulations of the company;

(6)

to propose the appointment or dismissal of deputy manager(s) and responsible persons in charge of the financial affairs of the company;

(7)

to appoint or dismiss management personnel, except those who shall be appointed or dismissed by the board of directors; and

(8)

to exercise other functions and powers authorized by the articles of association of the company and by the board of directors.

The manager shall attend meetings of the board of directors as a non-voting participant.

Article 120

If necessary, the board of directors may authorize its chairman to perform part of its functions and powers when the meeting of the board is not in session.

The board of directors may decide that one of its members shall concurrently serve as the manager of the company.

Article 121

A company shall solicit in advance the opinions of the trade union and its staff and workers in studying and deciding on issues involving the personal interests of its staff and workers such as the salary, welfare, safety in production, labour protection and labour insurance, and shall invite representatives from the trade union or from its staff and workers to attend relevant meetings as non-voting participants.

Article 122

A company shall solicit the opinions and suggestions of the trade union and its staff and workers when studying and deciding major issues in respect of the company's production and operations or the formulation of important rules and regulations of the company.

Article 123

Directors and managers shall abide by the articles of association of the company, faithfully perform their duties and protect the interests of the company, and shall not use their positions, functions and powers in the company to seek personal gains.

Provisions of Articles 57 to 63 of this Law regarding persons disqualified to serve as directors and managers, and the obligations and responsibilities of the directors and managers shall apply to directors and managers of joint stock limited companies.

Section 4 Supervisory Board

Article 124

A joint stock limited company shall have a supervisory board composed of no less than three members. The supervisory board shall elect a convener from among its members.

The supervisory board shall be composed of shareholders' representatives and an appropriate proportion of representatives of the staff and workers of the company, and the specific proportion of such representatives shall be provided for by the articles of association of the company. The representatives of the staff and workers serving on the supervisory board shall be democratically elected by the staff and workers of the company.

Directors, managers and responsible persons in charge of the financial affairs of the company may not serve concurrently as supervisors.

Article 125

The term of office of the supervisors shall be three years. A supervisor may serve consecutive terms if re-elected upon expiration of his term of office.

Article 126

A supervisory board shall exercise the following functions and powers:

(1)

to examine the financial affairs of the company;

(2)

to supervise the acts of the directors and the manager violating the laws, the administrative rules and regulations or the articles of association of the company during the performance of their functions;

(3)

to demand directors or the manager to make corrections if any of their acts is found to have damaged the interests of the company;

(4)

to propose the convening of interim shareholders' general meetings; and

(5)

other functions and powers provided for in the articles of association of the company.

Supervisors shall attend meetings of the board of directors as non-voting participants.

Article 127

The articles of association of the company shall stipulate the method of deliberation and voting procedures of the supervisory board.

Article 128

A supervisor shall faithfully perform his duties of supervision in accordance with the law, the administrative rules and regulations and the articles of association of the company.

Provisions of Articles 57 to 59 and Articles 62 to 63 of this Law regarding persons disqualified to serve as supervisors and the obligations and responsibilities of supervisors shall apply to the supervisors of joint stock limited companies.

Chapter IV Issue and Transfer of Shares of Joint Stock Limited Companies

Section 1 Issue of Shares

Article 129

The capital of a joint stock limited company shall be divided into shares of equal value.

The shares of the company shall take the form of share certificates, which are vouchers issued by the company to certify the shares held by their shareholders.

Article 130

The issue of shares shall be in compliance with the principles of publicity, fairness and justice. The same shares must carry the same rights and the same benefits.

Shares of the same issue shall be issued on the same conditions and at the same price. A unit or an individual subscribing to shares shall pay the same price for each share.

Article 131

Shares may be issued at or above par but not below par.

Shares to be issued above par shall be subjected to the approval of the department of security administration under the State Council.

The premiums generated from issuing shares above par shall be entered under the capital common reserve fund of the company.

Specific measures for the administration of issue of shares above par shall be separately stipulated by the State Council.

Article 132

Share certificates may be in paper form or in such other forms as stipulated by the department of security administration under the State Council.

The following main particulars shall be clearly stated on a share certificate:

(1)

the name of the company;

(2)

the date of registration of the company's establishment;

(3)

the class of the shares, the par value and the number of shares represented by the certificate; and

(4)

the serial number of the share certificate.

A share certificate shall be signed by the chairman of the board of directors and sealed with the seal of the company.

In the case of share certificates owned by sponsors, the words "sponsor's share certificate" shall be clearly stated on the share certificates.

Article 133

Shares issued by a company to sponsors, a State-authorized investment institution or legal persons shall be registered shares which shall state the names of the sponsors, state-authorized investment institution or legal persons. Such shares may not be registered in other names, or names of their representatives.

Shares issued to the general public may be either registered shares or bearer shares.

Article 134

Where registered shares are issued, the company shall prepare a roster of the shareholders, in which the following items shall be recorded:

(1)

the names or titles, and domiciles of the shareholders;

(2)

the number of shares held by each shareholder;

(3)

the serial numbers of the share certificates held by each shareholder; and

(4)

the date on which each shareholder obtained his shares.

Where bearer shares are issued, the company shall keep a record of the number, the serial numbers and the issue date of the share certificates.

Article 135

The State Council may formulate separate regulations on the issue of other classes of shares which are not provided for in this Law.

Article 136

A joint stock limited company shall formally deliver share certificates to its shareholders immediately after the registration of its establishment. No company may deliver share certificates to its shareholders prior to the registration of its establishment.

Article 137

To issue new shares, a company must satisfy the following conditions:

(1)

shares of the previous issue must have fully been subscribed for and at least one year has elapsed since the previous issue of shares;

(2)

the company has been continuously profitable for the last three years and is able to pay dividends to its shareholders;

(3)

the company is not found to have false records in the financial accounting documents in the last three years; and

(4)

the forecast profit rate of the company can reach the interest rate of bank deposit for the same period of time.

A company's distribution of new shares from the current year's profits shall not be restricted by item (2) of the preceding paragraph.

Article 138

Where a company issues new shares, resolutions on the following matters shall be adopted by a shareholders' general meeting:

(1)

the class and number of the new shares;

(2)

the issue price of the new shares;

(3)

the opening and closing dates of the new share issue; and

(4)

the class and number of new shares issued to existing shareholders.

Article 139

After the shareholders' general meeting adopts a resolution to issue new shares, the board of directors must apply to the department authorized by the State Council or to the local provincial people's government for approval. If the new shares are to be issued to the general public, the approval of the department of security administration under the State Council must be obtained.

Article 140

When a company obtains the approval to issue new shares to the general public, it must publicly announce its prospectus on new share offer and its financial accounting statements with annexed detailed schedules, and shall prepare subscription application forms.

When a company issues new shares openly to the public, the new shares shall be distributed by a securities agency established in accordance with the law, with which a distribution agreement shall be concluded.

Article 141

Where a company issues new shares, it may determine the pricing proposal for new shares based upon the circumstances of its consecutive profit gains and property value appreciations.

Article 142

Where the new share issue of a company is fully subscribed for, the company shall apply to the Company Registration Authority for registration of the modification in its capital and make a public announcement thereafter.

Section 2 Transfer of Shares

Article 143

Shares held by shareholders may be transferred in accordance with the law.

Article 144

Transfer of shares by shareholders shall be conducted through stock exchanges established in accordance with the law.

Article 145

Registered shares shall be transferred by means of endorsement by the shareholders or by such other means as provided for by the law and administrative rules and regulations.

When registered shares are transferred, the company shall register the transferee's name or title and domicile in its roster of shareholders.

No registration of modification to the roster of shareholders as stipulated in the preceding paragraph shall be made within thirty days prior to the convening of a shareholders' general meeting or within five days prior to the date decided by the company for the distribution of dividends.

Article 146

Transfer of bearer shares shall become effective immediately after the shareholder delivers the share certificates to the transferee at a stock exchange established in accordance with the law.

Article 147

Shares held by the sponsors of a company shall not be transferred within three years after the date of establishment of the company.

Directors, supervisors and the manager shall declare their numbers of shares held by them to the company, and shall not transfer such shares during their term of office.

Article 148

The State-authorized investment institution may transfer its shares held by it in accordance with the law and may purchase shares held by other shareholders. The authority to examine and approve, and measures for administration of such transfers or purchases shall be separately provided for by the law and administrative rules and regulations.

Article 149

A company may not purchase its own shares except where, for the purpose of reducing its capital, shares need to be cancelled, or where the company merges with another company which holds its shares.

A company must cancel the shares purchased by the company itself in accordance with the preceding paragraph within ten days, and register the change of its capital in accordance with laws and administrative rules and regulations and make a public announcement thereafter.

A company may not accept its own shares as the subject matter of a mortgage.

Article 150

Where registered share certificates are stolen, lost or destroyed, the shareholder may, in accordance with the procedure for publicizing public notice for assertion of claims provided for in the Civil Procedure Law, request a people's court to declare such share certificates as void.

After the voidness has been declared by a people's court in accordance with the aforesaid procedure, the shareholder may apply to the company for a replacement of the share certificates.

Section 3 Listed Companies

Article 151

A listed company mentioned in this Law refers to a joint stock limited company which has its issued shares listed and traded at stock exchanges with the approval of the State Council or the department of security administration authorized by the State Council.

Article 152

Where a joint stock limited company applies to have its shares listed and traded, the following conditions shall be satisfied:

(1)

the shares have already been issued to the general public with approval of the securities administrative department under the State Council;

(2)

the total amount of the company's share capital reaches not less than RMB 50,000,000 yuan;

(3)

the company must have been in operation for three years or more and have made profits for the past three consecutive years; the business operation of a company which is converted from a State-owned enterprise according to law or which is newly incorporated after the implementation of this Law with medium and large-size State-owned enterprises as the main sponsors may be traced back without interruption to the original enterprise or the main sponsors;

(4)

the number of shareholders holding shares at the face value of RMB 1,000 yuan or more is not less than one thousand and the shares issued to the general public amount to twenty five percent or more of the total share issue; where the company has a registered capital of more than RMB 400,000,000 yuan, the ratio of shares issued to the general public must amount to fifteen percent or more of the total share issue;

(5)

the company must have no records of involvement in serious illegal activities in the recent three years, and its financial accounting statements must contain no false information in the same period; and

(6)

other conditions as stipulated by the State Council.

Article 153

Where a joint stock limited company applies to have its shares listed and traded in a stock exchange, it shall apply to the State Council or the department of security administration authorized by the State Council for approval and submit the relevant documents as required by the law and administrative rules and regulations.

The State Council or the department of security administration authorized by the State Council shall approve applications for approval of the listing and trading of shares that comply with the conditions specified in this Law and shall not approve those that fail to comply with the provisions of this Law.

Where an application for the listing and trading of shares has been approved, the approved listed company must publicly announce its report on the listing of its shares and put its application documents at a designated place for public review.

Article 154

Shares of an approved listed company shall be listed and traded in accordance with the relevant laws and administrative rules and regulations.

Article 155

Upon approval of the department of security administration under the State Council, shares of a joint stock limited company may be listed and traded in stock exchanges outside the territory of the People's Republic of China and the measures therefore shall be specially formulated by the State Council.

Article 156

A listed company must, in compliance with the provisions of the laws and administrative rules and regulations, regularly disclose its financial and business situations. A financial accounting report shall be publicized every half year of each fiscal year.

Article 157

The department of security administration under the State Council may decide to suspend the listing of the shares of a listed company if any of the following circumstances occurs:

(1)

the total share capital and the distribution of share ownership have been altered to make the company no longer satisfy the requirements necessary for listing;

(2)

the company has failed to make public its financial situation in compliance with the legal provisions or has falsified its financial accounting statements;

(3)

the company is involved in major illegal acts; or

(4)

the company has incurred losses for the past three consecutive years.

Article 158

Where any of the circumstances stipulated in item(2) or (3) of the preceding Article applies to a listed company and the consequences are verified to be serious, or where any of the circumstances stipulated in item (1) or (4) of the preceding Article is unable to be eliminated within the time limit and the company has become disqualified as a listed company, the department of security administration under the State Council shall decide to terminate the listing of the shares of the company.

Where a company decides to dissolve itself, is ordered by a competent administrative department in accordance with the law to close down or is declared bankrupt, the department of security administration under the State Council shall decide to terminate the listing of the company's shares.

Chapter V Company Bonds

Article 159

A joint stock limited company, a wholly State-owned company, and a limited liability company incorporated by two or more State-owned enterprises or by two or more other State-owned investment entities may, for the purpose of raising funds for its production and operation, issue company bonds in accordance with this Law.

Article 160

Company bonds mentioned in this Law mean negotiable instrument issued by a company in accordance with the legal procedures with repayment of the principal and payment of the interest within a definite time limit.

Article 161

To issue company bonds, the following conditions must be met:

(1)

for a joint stock limited company, the value of its net asset may not be lower than RMB 30,000,000 yuan; for a limited liability company, the value of its net asset may not be lower than RMB 60,000,000 yuan;

(2)

the accumulated value of the bonds issued may not exceed forty percent of the value of the net assets of the company;

(3)

the average distributable profits for the past three years shall be sufficient to pay the interest on the company bonds for one year;

(4)

the funds to be raised must be invested in accordance with the industrial policies of the State;

(5)

the interest rate for the bonds shall not exceed the ceiling fixed by the State Council; and

(6)

other conditions as stipulated by the State Council.

Funds raised through the issue of company bonds must be used for the purpose approved by the examination and approval authorities and shall not be used to make up the losses of the company or for non-production expenditure.

Article 162

In any of the following circumstances, a company may not make another issue of bonds:

(1)

if the company bonds of the previous issue have not been fully subscribed for; or

(2)

if it is a fact that the company has defaulted on, or deferred repayment of the principal and the payment of interest of its previously issued company bonds or its debts, and such default or deferment still persists.

Article 163

For a joint stock limited company and a limited liability company to issue company bonds, its board of directors shall formulate a plan therefor, and a pertinent resolution shall be adopted by the shareholders' meeting.

For a wholly State-owned company to issue company bonds, a decision on the approval shall be made by the State-authorized investment institution or the department authorized by the State.

Where a resolution or decision is made in accordance with the preceding two paragraphs of this Article, the company shall submit the matter to the department of security administration under the State Council for approval.

Article 164

The scale of the company bond issues shall be determined by the State Council. Issues of company bonds examined and approved by the department of security administration under the State Council shall not exceed the scale determined by the State Council.

The department of security administration under the State Council shall approve the application for issuing company bonds if it conforms with the provisions of this Law and shall disapprove the application if it does not conform with the provisions of this Law.

If an approval that has been granted is found not to be in compliance with the stipulations of this Law, such an approval shall be withdrawn. In the event that company bonds have not yet been issued, the company shall stop issuing the bonds; if the company bond issue has already commenced, the issuing company shall refund the subscribers the money already paid for their subscriptions plus bank deposit interest calculated for the same period of time.

Article 165

Where a company applies to the department of security administration under the State Council for issuing company bonds, the following documents shall be submitted:

(1)

the registration certificate of the company;

(2)

the articles of association of the company;

(3)

the method of offer of the company bonds; and

(4)

an asset valuation report and an asset verification report.

Article 166

After an application for the issue of company bonds is approved, the company shall make a public announcement of the method of offer of the company bonds.

The method of offer of company bonds shall specify the following main particulars:

(1)

the name of the company;

(2)

the total amount of the bonds and their par value;

(3)

the interest rate of the bonds;

(4)

the time limit for and the method of the repayment of the principal and the payment of interest;

(5)

the beginning and ending dates of the bond issue;

(6)

the amount of the net assets of the company;

(7)

the total amount of the undue bonds issued by the company; and

(8)

the selling agency of the company bonds.

Article 167

Company bonds issued by a company must clearly carry thereon items such as the name of the company, the par value, the interest rate and the time limit for repayment, and the bonds shall be signed by the chairman of the board of directors and sealed by the company.

Article 168

Company bonds may be divided into registered bonds and bearer bonds.

Article 169

A company issuing company bonds shall prepare the counterfoils of bonds issued.

When registered company bonds are issued, the counterfoils of bonds shall specify the following:

(1)

the name or title and domicile of the bondholder;

(2)

the date on which the holder acquired the bonds and their serial numbers;

(3)

the total amount of the bonds, the par value, the interest rate of the bonds and the method of and time limit for repayment of the principal and payment of interest; and

(4)

the issuing date of the bonds.

Where bearer company bonds are issued, the counterfoils of the company bonds shall specify the total amount of the bonds, the interest rate, the time limit for and method of repayment of the principal and payment of interest, the issuing date of the bonds and the serial numbers.

Article 170

Company bonds may be transferred. The transfer shall be carried out at the securities exchanges established in accordance with the law.

The price for the transfer of the company bonds shall be agreed upon by the transferor and transferee.

Article 171

Registered bonds shall be transferred by means of endorsement by the bondholder or by other means provided for by the law or administrative rules and regulations.

Where registered bonds are transferred, the name and domicile of the transferee shall be recorded in the counterfoils of the company bonds.

Where bearer bonds are transferred, the transfer becomes effective immediately after the bondholder delivers his bonds to the transferee at a securities exchange established in accordance with the law.

Article 172

Upon adoption of a resolution by the shareholders' general meeting, a listed company may issue company bonds which can be converted into shares. The specific measures for the conversion shall be stipulated in the method of offer of the company bonds.

The issue of company bonds convertible into shares shall be subjected to the approval of the department security administration under the State Council. Company bonds convertible into shares shall, in addition to satisfying the conditions for the issue of company bonds, satisfy the conditions for the issue of shares.

In issuing company bonds convertible into shares, the words" convertible company bonds" shall be clearly indicated on the bonds and the amount of convertible company bonds shall be recorded in the counterfoils of company bonds.

Article 173

A company that issues company bonds convertible into shares shall let the bondholders convert their bonds into shares in accordance with the conversion measures. However, bondholders shall have an option whether or not to convert their bonds into shares.

Chapter VI Financial Affairs and Accounting of Companies

Article 174

A company shall establish its financial and accounting system in accordance with the law, administrative rules and regulations, and the stipulations of the department in charge of financial affairs under the State Council.

Article 175

At the end of each fiscal year, a company shall prepare its financial and accounting report, which shall be examined and verified in accordance with the law.

The financial and accounting report shall include the following financial and accounting statements and annexed detailed schedules:

(1)

a balance sheet;

(2)

a profit and loss statement;

(3)

a statement on changes in the financial position of the company;

(4)

a statement explaining the financial situation of the company; and

(5)

a statement regarding the distribution of profits.

Article 176

A limited liability company shall send the financial and accounting report to each of its shareholders within the time limit stipulated in its articles of association.

A joint stock limited company shall make the financial and accounting report available at the company for examination by its shareholders twenty days prior to the convening of the shareholders' annual general meeting.

A joint stock limited company incorporated by means of share offer must announce its financial and accounting report.

Article 177

When a company distributes the annual after-tax profits, it shall allocate ten percent of its profits to its statutory common reserve fund and another five to ten percent to its statutory common welfare fund. Where the accumulated amount of the statutory common reserve fund has exceeded fifty percent of the registered capital of the company, no further allocation may be made.

Where the statutory common reserve fund is insufficient to make up the company's losses of the previous fiscal year, the company shall apply its annual after-tax profits to making up its losses before allocating such profits, in accordance with provisions of the preceding paragraph, to the statutory common reserve fund and statutory common welfare fund.

After making its allocation to the statutory common reserve fund from the company's after-tax profits, the company may, upon resolution made by the shareholders' meeting, make allocations to the discretionary common reserve fund.

After a company makes up its losses and makes allocations to the statutory common reserve fund and the statutory common welfare fund, a limited liability company shall distribute the remaining profits to its shareholders according to the proportion of capital subscribed for by each shareholder, and a joint stock limited company shall distribute the remaining profits to its shareholders according to the proportion of the shareholdings held by each shareholder.

Where the shareholders' meeting or the board of directors violates the provisions of the preceding paragraphs by distributing profits to the shareholders before making up the company's losses and making allocations to the statutory common reserve fund and the statutory common welfare fund, the profits distributed in violation of the legal provisions must be returned to the company.

Article 178

The premium income derived from issuing shares above par by a joint stock limited company in accordance with the provisions of this Law, and other income which according to the rules set by the departments in charge of financial affairs under the State Council should be entered into the capital common reserve fund, shall be entered into the capital common reserve fund of the company.

Article 179

A company's common reserve fund shall be used to make up the company's losses, to expand the production and operation of the company or to increase the capital of the company by means of conversion.

If a joint stock limited company converts its common reserve fund into capital upon a resolution made by the shareholders' general meeting, it shall issue new shares in proportion to the original shares held by the shareholders or increase the original par value of each share. However, when the statutory common reserve fund is converted into its capital, the remaining amount of the statutory common reserve fund shall not be less than twenty five percent of the registered capital.

Article 180

The statutory common welfare fund retained by a company shall be used for the collective welfare of the company's staff and workers.

Article 181

A company shall not have any other account books in addition to its statutory account books.

No account may be opened in the name of any individual for deposit of a company's assets.

Chapter VII Merger and Division of Companies

Article 182

The merger or division of a company shall require the adoption of a resolution by its shareholders' meeting of the company.

Article 183

The merger or division of a joint stock limited company must be approved by the department authorized by the State Council or by the people's government at the provincial level.

Article 184

The merger of a company may take the form of merger by absorption or merger by new establishment.

When a company absorbs another, it is an absorption merger, and the company being absorbed shall be dissolved. When two or more companies merge to establish a new company, it is merger for new establishment, and all parties being merged shall be dissolved.

When companies merge, the parties to a merger shall sign a merger agreement and formulate a balance sheet and a detailed inventory of assets. The company shall inform its creditors of the intended merger within ten days following the date on which the merger resolution is adopted, and make at least three announcements in newspaper within thirty days. The creditors shall have the right to claim full repayment of their debts or provision of a corresponding guarantee from the company within thirty days from the date of receipt of the notice or, within ninety days from the date of the first public announcement for those who have not received the notice. The company that fails to repay its debts in full or to provide a corresponding guarantee shall not be merged.

The claims and debts of the parties to a merger shall be succeeded to by the absorbing company or the newly established company when companies are merged.

Article 185

Where a company proceeds into a division, its assets shall be divided correspondingly.

Where a company decides to divide itself, it shall formulate a balance sheet and a detailed inventory of assets and shall inform its creditors of the intended division within ten days following the date on which the division resolution is adopted, and make at least three announcements in newspaper within thirty days. The creditors shall have the right to claim full repayment of their debts or provision of a corresponding guarantee from the company within thirty days from the date of receipt of the notice or, within ninety days from the date of the first public announcement for those who have not received the notice. The company that fails to pay its debts in full or to provide a corresponding guarantee shall not be divided.

The debts prior to the division of a company shall be assumed by the companies following the division in accordance with the agreement reached between them.

Article 186

Where a company intends to reduce its registered capital, it must formulate a balance sheet and a detailed inventory of assets.

The company shall inform its creditors of the planned reduction of its registered capital within ten days following the date on which the resolution to reduce its capital is adopted, and make at least three announcements in newspaper within thirty days following the aforesaid date. The creditors shall have the right to claim full repayment of their debts or provision of a corresponding guarantee from the company within thirty days from the date of the receipt of the notice or, within ninety days from the date of the first public announcement for those who have not received the notice.

After the reduction of capital, the amount of a company's registered capital shall not be lower than the statutory minimum.

Article 187

Where a limited liability company increases its registered capital, the capital contributions to the newly increased shares subscribed for by the shareholders shall be governed by the relevant provisions of this Law regarding the subscription for capital contributions in connection with the establishment of a limited liability company.

Where a joint stock limited company issues new shares to increase its registered capital, shareholders shall subscribe for the new shares in accordance with the relevant provisions of this Law regarding the payment of subscription money in connection with the establishment of a joint stock limited company.

Article 188

Where the merger or division of a company involves changes in registered items, such changes shall be registered according to law with the Company Registration Authority. Where a company is dissolved, it shall apply for cancellation of its registration in accordance with the law. Where a new company is incorporated, the registration of the establishment of the company shall be carried out according to law.

Where a company increases or reduces its registered capital, it shall apply to the Company Registration Authority for registration of the changes in accordance with the law.

Chapter VIII Bankruptcy, Dissolution and Liquidation of Companies

Article 189

Where a company is declared bankrupt according to law because it is unable to pay off its due debts, a people's court shall, in accordance with relevant laws, organize the shareholders, the relevant departments and relevant professionals to form a liquidation committee which shall conduct bankruptcy liquidation of the company.

Article 190

Where one of the following circumstances occurs, a company may be dissolved:

(1)

the term of operation as stipulated by the articles of association of the company expires or other reasons for dissolution as stipulated by the articles of association occur;

(2)

the shareholders' meeting resolves to dissolve the company; or

(3)

dissolution is necessary as a result of the merger or division of the company.

Article 191

Where a company is dissolved in accordance with the provisions of item (1) or (2) of the preceding Article, a liquidation committee shall be formed within fifteen days thereafter. A liquidation committee of a limited liability company shall be composed of its shareholders. Membership of a liquidation committee of a joint stock limited company shall be decided upon by its shareholders' general meeting. Where a company fails to form a liquidation committee to conduct liquidation within the time limit, its creditors may request a people's court to designate relevant personnel to form a liquidation committee and conduct liquidation. The people's court shall accept such request and without delay designate the members of the liquidation committee to conduct liquidation.

Article 192

Where a company is ordered to be closed down in accordance with the law due to its violation of the law or administrative rules and regulations, it shall be dissolved. In such a case, the department in charge shall organize the shareholders, relevant departments and relevant professionals to form a liquidation committee to conduct liquidation.

Article 193

During liquidation, a liquidation committee shall exercise the following functions and powers:

(1)

to check up on the company's assets, and separately formulate a balance sheet and a detailed inventory of assets;

(2)

to notify creditors by notice or announcement;

(3)

to dispose of and liquidate the company's unfinished business;

(4)

to pay off taxes owed by the company;

(5)

to clear up claims and debts;

(6)

to dispose of, after paying off the debts of the company, its remaining property; and

(7)

to participate in civil lawsuits on behalf of the company.

Article 194

A liquidation committee shall inform the creditors of the company of its establishment within ten days following the date of its establishment, and make at least three announcements in newspaper within sixty days following the aforesaid date. The creditors shall declare their claims to the liquidation committee within thirty days from the date of receipt of the notice or, within ninety days from the date of the first public announcement for those who have not received the notice.

When declaring his claims, a creditor shall specify the relevant items of the claim and provide supporting material. The liquidation committee shall register the claims.

Article 195

After the liquidation committee has checked up on the company's assets, formulated the balance sheet and a detailed inventory of assets, it shall formulate a liquidation plan and shall submit such plan to the shareholders' meeting or the department in charge for confirmation.

Where the assets of the company are sufficient to pay off the company's debts, such assets shall be applied to payment of the liquidation fee, the wages and labour insurance premiums of the staff and workers of the company, due taxes and the company's debts.

The remaining assets of a company after paying off all the debts and expenses as prescribed by the preceding paragraph shall be distributed, in the case of a limited liability company, in proportion to the shareholders' capital contributions and, in the case of a joint stock limited company, in proportion to the shareholders' shareholdings.

During liquidation, a company may not engage in new business activities. No assets of the company shall be distributed to the shareholders prior to full payments prescribed by the second paragraph of this Article.

Article 196

If a company is liquidated due to its dissolution and the liquidation committee, having checked up on the company's assets and formulated the balance sheet and a detailed inventory of assets, discovers that there are insufficient assets in the company to pay off its debts, the committee shall apply to the people's court for a declaration of bankruptcy of the company.

After the people's court has ruled to declare the company bankrupt, the liquidation committee shall turn the liquidation matters over to the court.

Article 197

After the completion of liquidation, the liquidation committee shall formulate a liquidation report and submit the report to the shareholders' meeting or to the department in charge for confirmation and submit it to the Company Registration Authority in order to cancel the registration of the company and publicly announce the company's termination. If no application is made for cancellation of the company's registration, the Company Registration Authority shall revoke the business licence of the company and publicly announce the revocation.

Article 198

Members of a liquidation committee shall be devoted to their duties and perform their liquidation obligations in accordance with the law.

Members of a liquidation committee shall not accept bribes or other illegal income, or misappropriate the property of the company by taking advantage of their position and power.

Members of a liquidation committee who cause losses to the company or to its creditors, either willfully or through gross negligence, shall be liable for compensation.

Chapter IX Branches of Foreign Companies

Article 199

A foreign company may, in accordance with this Law, establish a branch within the territory of the People's Republic of China to engage in production and business activities.

A foreign company mentioned in this Law means a company registered and incorporated outside the territory of the People's Republic of China in accordance with foreign laws.

Article 200

A foreign company that intends to establish a branch within the territory of the People's Republic of China must submit an application to the authorities in charge in China together with relevant documents such as its articles of association and the company registration certificate issued by its country. Upon approval, it shall apply to the Company Registration Authority for registration and for a business licence for the branch according to law.

Measures for examining and approving the establishment of branches of foreign companies shall be formulated separately by the State Council.

Article 201

A foreign company that establishes a branch within the territory of the People's Republic of China must appoint its representative or agent within the territory of the People's Republic of China to take charge of the branch and shall allocate to the branch funds commensurate with the business which it is to engage in.

Where a minimum amount of operational funds is required for a branch of a foreign company, the State Council shall separately prescribe to that effect.

Article 202

A branch of a foreign company shall clearly indicate in its name the nationality and the form of liability of such foreign company.

The branch shall keep at its domicile a copy of the articles of association of such foreign company.

Article 203

A foreign company is a foreign legal person, so its branch established within the territory of the People's Republic of China shall not have the status of a Chinese legal person in China.

A foreign company shall bear civil liability for the operational activities engaged by its branch within the territory of the People's Republic of China.

Article 204

The business activities engaged in within the territory of the People's Republic of China by branches of foreign companies established upon due approval must comply with the laws of China and shall not harm the social and public interest of China. The lawful rights and interests of such branches shall be protected by the laws of China.

Article 205

Where a foreign company dissolves its branch established within the territory of the People's Republic of China, it must pay off the branch's debts according to law and carry out liquidation in accordance with the relevant procedures concerning company liquidation provided for in this Law. The assets of the branch shall not be transferred out of the territory of the People's Republic of China prior to the full payment of its debts.

Chapter X Legal Liability

Article 206

Where a company obtains its registration by making a false report on its registered capital, submitting falsified certificates, or resorting to other fraudulent means to conceal important facts in violation of this Law when carrying out company registration, it shall be ordered to make a rectification; where a company makes a false report on its registered capital, it shall be fined an amount of not less than five percent but not more than ten percent of the registered capital falsely reported; where a company submits falsified certificates or resorts to other fraudulent means to conceal important facts, it shall be punished with a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan. If circumstances are serious, the registration of the company shall be revoked. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 207

Where a company issues shares or company bonds by making false prospectus on share offer, false subscription forms or false methods of offer of company bonds, it shall be ordered to stop the issuance and to refund the funds it has raised and the interest therefrom to the subscribers, and shall be punished with a fine of not less than one percent but not more than five percent of the funds illegally raised. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 208

Where a sponsor or a shareholder makes a false capital contribution by failing to pay the promised cash or tangible assets, or to transfer property rights, thereby deceiving the creditors and the general public, he shall be ordered to make a rectification and imposed a fine of not less than five percent but not more than ten percent of the false capital contributions. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 209

Where a sponsor or a shareholder of a company surreptitiously withdraws his capital contribution after the establishment of the company, rectification shall be ordered and a fine of not less than five percent but not more than ten percent of the amount of capital contribution withdrawn surreptitiously shall be imposed. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 210

Where a company issues shares or company bonds without the approval of the relevant department in charge as stipulated by this Law, it shall be ordered to stop the issuance and to refund the funds it has raised with interest, and a fine of not less than one percent but not more than five percent of the funds illegally raised shall be imposed. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 211

Where a company violates the provisions of this Law by setting up account books in addition to its statutory account books, it shall be ordered to make a rectification and imposed a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Whoever deposits the assets of a company in a personal account shall be confiscated of the illegal gains and imposed upon a fine from one to five times the amount of the illegal gains. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 212

Where a company submits to the shareholders and the general public false financial and accounting reports or reports concealing important facts, the persons in charge who are directly responsible and other persons directly held responsible shall be imposed upon a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 213

Where this Law is violated by converting the State-owned assets into shares at a depressed value, or selling them at low prices, or distributing them gratuitously to individuals, the persons in charge who are directly responsible and other persons directly held responsible shall be given administrative sanctions in accordance with the law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 214

Where a director, a supervisor or the manager of a company takes advantage of his position and powers to accept bribes, to take other illegal gains or to misappropriate company property, he shall be confiscated of the illegal gains, ordered to return such property to the company, and imposed upon a sanction. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Where a director or the manager misappropriates company funds or lends company funds to another person, he shall be ordered to return such funds to the company; the gains derived therefrom shall belong to the company; the company shall impose a sanction upon him. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Where a director or the manager violates the provisions of this Law by providing company assets as a guarantee for personal debts of a shareholder of its company or of another person, he shall be ordered to cancel the guarantee and shall be liable for compensation in accordance with the law; the gains derived from the illegal provision of guarantee shall belong to the company. If the circumstances are serious, the company shall impose a sanction upon him.

Article 215

Where a director or the manager violates the provisions of this Law by engaging for his own account or for another person in the same kind of business as his company is engaged in, the income derived therefrom shall belong to the company. In addition, the company may impose a sanction upon him.

Article 216

Where a company fails to make allocations to its statutory common reserve fund or statutory common welfare fund in accordance with this Law, the company shall be ordered to make up the amount that it is required to allocate and shall be imposed upon a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan.

Article 217

Where a company fails to issue a notice or make an announcement to its creditors according to this Law in case of merger, division, reduction of its registered capital or liquidation, it shall be ordered to make a rectification and be imposed upon a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan.

Where a company, in the process of its liquidation, conceals property, records false information in its balance sheet or inventory of assets or, distributes the company assets prior to the full payment of its debts, it shall be ordered to make a rectification and be imposed upon a fine of not less than one percent but not more than five percent of the amount concealed or of the amount distributed prior to the full payment of the debts of the company. The persons in charge who are directly responsible and others directly held responsible shall be imposed upon a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan.If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 218

Where a liquidation committee fails to submit a liquidation report to the Company Registration Authority in accordance with the provisions of this Law, or where a report submitted conceals major facts or contains major omissions, it shall be ordered to make a rectification.

Where a member of the liquidation committee takes advantage of his position and power to practice favoritism for personal gains, seek illegal income or misappropriate the property of the company, he shall be ordered to return the property to the company, confiscated of his illegal gains and imposed upon a fine from one to five times the amount of his illegal gains. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 219

Where an institution in charge of asset valuation, capital verification or certificate verification provides false documents of certification, the illegal income derived therefrom shall be confiscated and a fine from one to five times the amount of the illegal income shall be imposed; the relevant department in charge may order the institution to suspend its business and revoke the qualification certificates of those directly held responsible according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Where an institution in charge of asset valuation, capital verification or certificate verification provides by negligence reports with major omissions, it shall be ordered to make a rectification; where the circumstances are serious, a fine from one to three times the amount of the income derived therefrom shall be imposed, and the relevant department in charge may order the institution to suspend its business and revoke the qualification certificates of those directly held responsible according to law.

Article 220

Where a relevant department in charge authorized by the State Council approves an application for the establishment of a company or an application for the issue of shares that does not satisfy the conditions as stipulated in this Law, if the circumstances are serious, the persons in charge who are directly responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 221

Where the department security administration under the State Council approves an application for the offer of shares, the listing of shares or the issue of bonds that does not satisfy the conditions as stipulated in this Law, if circumstances are serious, the persons in charge who are directly responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 222

Where the Company Registration Authority approves an application for registration which does not meet the requirements as stipulated in this Law, if the circumstances are serious, the persons in charge directly held responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 223

Where departments at a level higher than the Company Registration Authority force the Company Registration Authority to approve an application for registration which does not meet the requirements as stipulated in this Law or, covers up an illegal registration, the persons in charge who are directly responsible and others directly held responsible shall be given administrative sanctions according to law. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 224

Where a company that has not registered according to law as a limited liability company or a joint stock limited company assumes the name of "limited liability company" or "joint stock limited company", it shall be ordered to make a rectification or be banned, and a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan may be imposed. If a crime is constituted, criminal liabilities shall be investigated in accordance with the law.

Article 225

Where a company fails to commence its business without justification within the period of more than six months of its establishment or, after commencing its business, suspends business at its own will for a period of six consecutive months or more, the Company Registration Authority shall revoke the company's business licence.

Where a company fails to apply for modification registration in accordance with the provisions of this Law whenever modification occurs in items of company registration, it shall be ordered to conduct modification registration within a specified time limit; and if the company still fails to register within the specified time limit, a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan shall be imposed.

Article 226

Where a foreign company, in violation of the provisions of this Law, establishes a branch within the territory of the People's Republic of China without authorization, it shall be ordered to make a rectification or to be closed down, and a fine of not less than RMB 10,000 yuan but not more than RMB 100,000 yuan may be imposed.

Article 227

Where a relevant department in charge performing examination and approval duties according to this Law refuses to approve an application which meets the statutory requirements or the Company Registration Authority refuses an application for registration which meets the statutory requirements, the party concerned may apply for reconsideration or institute an administrative lawsuit in accordance with the law.

Article 228

Where a company violating the provisions of this Law should assume civil liability for compensation and pay fines and penalties, and the company's property is insufficient to pay such compensation, fines and penalties, the company shall assume the civil liability for compensation first.

Chapter XI Supplementary Provisions

Article 229

Companies registered and incorporated in accordance with the law, administrative rules and regulations, local regulations or the Opinions on Standardization of Limited Liability Companies and the Opinions on Standardization of Joint Stock Limited Companies formulated by the relevant competent departments under the State Council prior to the implementation of this Law shall continue to be retained; companies which do not fully meet the requirements as stipulated in this Law shall meet all such requirements within a prescribed time limit. Specific measures for the implementation thereof shall be formulated separately by the State Council.

To a joint stock limited company of new technological achievements, its proportion of registered capital covered by the fund of the appraised value of the investment of a sponsor in the form of industrial property and non-patented technology, and the conditions of issuing new shares by the company and applying to have its shares listed and traded shall be provided by the State Council otherwise.

Article 230

This Law shall enter into force as of July 1,1994.