Laws of the People's Republic of China

China Securities Regulatory Commission

Circular of China Securities Regulatory Commission on Issuing the Measures for the Administration of the Share-trading Reform of Listed Companies

Zheng Jian Fa [2005] No. 86

All listed companies and the shareholders thereof and all sponsors,

With a view to carrying out the spirits of Some Opinions of the State Council on Promoting the Reform, Opening-up and Sustained Development of the Capital Market and the Guiding Opinions for the Share-trading Reform of Listed Companies, regulating the share-trading reform of listed companies, promoting the reform, opening-up and sustained development of the capital market and protecting the legitimate rights and interests of investors, the Measures for the Administration of the Share-trading Reform of Listed Companies have been formulated and are hereby promulgated. Please implement them accordingly.

China Securities Regulatory Commission

September 4, 2005

Measures for the Administration of the Share-trading Reform of Listed Companies

Chapter I General Provisions

Article 1

With a view to regulating the share-trading reform of listed companies, promoting the reform, opening-up and sustained development of the capital market and protecting the legitimate rights and interests of investors, the present Measures are formulated according to the Company Law, the Securities Law, the Interim Regulations on the Administration of Issuing and Trading of Stocks, Some Opinions of the State Council on Promoting the Reform, Opening-up and Sustained Development of the Capital Market as well as the Guiding Opinions for the Share-trading Reform of Listed Companies jointly promulgated by China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission, the Ministry of Finance, the People's Bank of China and the Ministry of Commerce.

Article 2

The term "share-trading reform of listed companies" refers to the process during which the institutional difference in aspect of the share transfer in A-share market is eliminated through the negotiation mechanism for balancing the interests between the holders of non-tradable shares and the holders of tradable shares.

Article 3

The share-trading reform of listed companies shall follow the principles of openness, fairness and impartiality, and be carried out on the basis of negotiation on an equal footing, good faith, mutual understanding and autonomy in decision-making. China Securities Regulatory Commission (hereinafter referred to as the CSRC) shall exercise supervision and administration on all the parties involved in the share-trading reform and the relevant activities, and shall organize, guide, coordinate and promote the share-trading reform.

Article 4

Stock exchanges shall, in light of the authorization of the CSRC and the provisions of the present Measures, exercise front-line supervision over the share-trading reform of listed companies, coordinate and guide the operations regarding the share-trading reform of listed companies, and handle the formalities for the listing of non-tradable shares.

Stock exchanges and the securities depository & clearing corporation shall, according to the present Measures, formulate the operation guidelines, provide services to those listed companies that undergo the share-trading reform (hereinafter referred to as the company) for their conducting the relevant operations and exercise continuous supervision over the fulfillment of the obligation of information disclose and the fulfillment of commitments for the reform by the parties concerned, as well as the selling of shares by the original holders of non-tradable shares of the company after completion of the reform.

Chapter II Operation Procedures

Article 5

In general, the motion for the share-trading reform shall be made by all the holders of non-tradable shares of a company upon consensus, or may be made by the holders that solely or jointly hold 2/3 or more of the non-tradable shares of the company if the consensus can not be reached. When making the motion for reform, the holders of non-tradable shares shall entrust in writing the board of directors of the company to call in the relevant shareholders in the A-share market for a meeting (hereinafter referred to as the meeting of relevant shareholders) to review the share-trading reform schemes of the company (hereinafter referred to as the reform schemes).

Such matters as convocation or voting of the meeting of relevant shareholders or the information disclosure shall be conducted by referring to the relevant provisions on the general meetings of shareholders of listed companies, and the relevant shareholders shall vote on the reform schemes by category.

Article 6

Upon receipt of a written authorization of the holders of non-tradable shares, the board of directors of the company shall employ a sponsor to cooperate in the formulation of the reform scheme and to issue sponsor's opinion, and employ a law office to examine and verify the regulation compliance of the matters concerning the share-trading reform and to issue legal opinion.

Article 7

The board of directors of a company, holders of non-tradable shares, the sponsor and the sponsor representative, the law office and its handling lawyers shall sign written agreements specifying the secrecy obligation and stipulating that all the parties may not disclose the relevant matters prior to the publicity of the reform scheme.

Article 8

The board of directors of a company shall entrust the sponsor to solicit opinions of the stock exchange in regard to the technical feasibility of the reform scheme and the time arrangement for the meeting of relevant shareholders.

The stock exchange shall give operation guidance to the share-trading reform, evenly control reform progress and determine the time for the meeting of relevant shareholders upon negotiation.

Article 9

The board of directors of a company shall, pursuant to the time arrangement determined through negotiation with the stock exchange, promulgate a notice on the meeting of relevant shareholders, publicize the statement of the reform, letters of opinions of independent directors, the sponsor's opinion as well as the legal opinion, and shall apply for the suspension of trading of stocks of the company.

Article 10

The board of directors of a company shall, within ten days as of the announcement of the notice on the meeting of relevant shareholders, cooperate with the holders of non-tradable shares in sufficiently communicating and negotiating with the holders of tradable shares in A-share market (hereinafter referred to as the holders of tradable shares) by means of the symposium of investors, press conference, roadshow online, visiting institutional investors and issuance of letters on soliciting opinions, etc., and shall publicize hot lines, faxes and emails to widely solicit opinions from the holders of tradable shares, so as to form a wide base of shareholders for the reform scheme.

Article 11

After the conclusion of procedures of the communication and negotiation between holders of non-tradable shares and tradable shares as prescribed in the preceding article, if the reform scheme needs not to be adjusted, the board of directors shall make an announcement and apply for the resumption of trading; if the reform scheme needs to be adjusted, the board of directors shall apply for the resumption of trading after making corresponding adjustments and supplementary explanations on the statement of the reform, letters of opinions of independent directors, sponsor's opinion and legal opinion, etc. and making an announcement.

After the resumption of trading of the company's shares, the reform scheme may not be adjusted again.

Article 12

The board of directors of a company shall apply for the suspension of trading of the company' shares when convening the meeting of relevant shareholders. The period for the aforesaid suspension of trading shall be calculated from the day following the date of equity registration at the meeting of relevant shareholders to the day when the prescribed procedures for the reform are finished.

Article 13

The board of directors of a company shall, prior to the meeting of relevant shareholders, publish an announcement to remind the relevant shareholders of the meeting on the designated newspapers and periodicals for not less than two times.

The solicitation of voting rights at the meeting of relevant shareholders shall be in the charge of the board of directors of the company.

Article 14

The board of directors of a company shall work out the technical arrangements on online voting for the shareholders attending the meeting of relevant shareholders to vote. The time for online voting may not be less than three days.

Article 15

Where the implementation of the consideration arrangement for balancing interests in the share-trading reform (hereinafter referred to as the consideration arrangement) by the holders of non-tradable shares shall be subject to the approval of the state-owned asset supervision and administration institution, the approval shall be obtained and the approval document shall be published prior to the online voting at the meeting of relevant shareholders.

Article 16

When the meeting of relevant shareholders takes a vote on the reform scheme, the reform scheme shall be adopted by shareholders with two-thirds or more of the voting rights participating in the voting and by the holders of tradable shares with two-thirds or more of the voting rights participating in the voting.

Article 17

If the reform scheme is voted through at the meeting of relevant shareholders, the board of directors shall publish the result of the voting at the meeting the meeting of relevant shareholders within two working days.

The board of directors shall, pursuant to the time arrangement as determined upon negotiation with the stock exchange, publish such matters as the implementation of the reform scheme and the resumption of trading of the company' shares.

As to a company or a banking company with foreign shares holding an approval certificate for foreign-invested enterprises, if the reform scheme involves any matter subject to the examination and approval for the foreign capital administration, the company shall obtain the examination and approval document of the relevant department under the State Council prior to the announcement of the implementation of the reform scheme.

Article 18

In case a reform scheme is not adopted at the meeting of relevant shareholders, the board of directors shall publish the result of the voting at the meeting of relevant shareholders within two working days, and apply for resumption of trading of the company' shares on the next day.

In case a reform scheme is not adopted at the meeting of relevant shareholders, the holders of non-tradable shares may, after three months and according to Article 5 of the present Measures, entrust the board of directors of the company to hold the meeting of relevant shareholders for the share-trading reform once again.

Article 19

The share-trading reform of any listed company that is under abnormal circumstances shall be carried out according to the following principles:

(1)

Where the relevant parties of a company are suspected of being involved in insider trading by making use of the information on the share-trading reform of the company and is being put on the file for investigation, the reform can be carried out only after the investigation is completed;

(2)

Where the trading of stocks of the company is suspected of being involved in market manipulation and is being put on the file for investigation or the shares of the company are suspected of being collectively and illegally held by an institution or individual, the reform can be carried out only after the risks are eliminated;

(3)

Where any holding shareholder of a company is suspected of wrongfully taking over the interests of the company and is being put on the file for investigation, the reform can be carried out only after there is a feasible scheme that can solve the problem; or

(4)

Where there is any other abnormality, the reform can be carried out only after the approval of the CSRC.

Article 20

As to a listed company that issues foreign shares listed overseas or at home, the relevant shareholders in the A-share market shall negotiate on the listing of shares held by the holders of non-tradable shares in the A-share market.

Article 21

As to an overseas listed company holding the non-tradable shares of a listed company in the A-share market, the decision-making process for the consideration arrangement shall comply with its articles of association and the provisions on the disposal of company assets of the overseas country or region where the company are listed.

As to a domestic listed company holding the non-tradable shares of a listed company in the A-share market, the decision-making process for the consideration arrangement shall comply with its articles of association and the provisions on the disposal of company assets as prescribed in the operation rules of stock exchanges.

Chapter III Reform Scheme

Article 22

The reform scheme shall pay attention to the immediate interests and the long-term interests of all the shareholders, be good for the development of the company and stabilization of the market, and may, according to the actual situation of the company, adopt feasible measures for stabilizing the share price, such as the shareholding increase by controlling shareholders, buy-back of shares by the listed company, presetting of actual selling conditions for original non-tradable shares, pre-design of sell-back price or call warrant.

Article 23

The commitments made by any holder of non-tradable shares in a reform scheme shall meet the technical conditions for the supervision by the stock exchange and the securities depository & clearing corporation. Or any party that has made commitments shall take measures for guarantying the fulfillment of the commitments. Any holder of non-tradable shares shall make a written statement on faithful fulfillment of commitments.

Article 24

No holder of non-tradable shares may transfer the shares held thereby before completely fulfilling his commitments, unless the transferee agrees and has the capacity to fulfill the commitments for him.

Article 25

The treatment of the shares held by holders of non-tradable shares who have objections to or have not clearly expressed their consent to the reform scheme shall be specified in the reform scheme, and lawful and feasible solution shall be put forward and explained in the reform scheme.

Article 26

Where the share-trading reform of a company is carried out together with the assets reorganization, and the reorganizing parties involved take the realization of the profitable capacity or the improvement of financial status of the company as the consideration arrangement by injecting high-quality assets or assuming debts, etc., the procedures for assets reorganization and the share-trading reform shall be in line with the present Measures and the relevant provisions as provided for by the CSRC.

Chapter IV Selling of Original Non-tradable shares of Companies after the Reform

Article 27

The following provisions shall be followed for the selling of original non-tradable shares of a company after the reform:

(1)

The original non-tradable shares may not be listed for trading or be transferred within twelve months as of the day when the reform scheme comes into force; and

(2)

Where the original holders of non-tradable shares holding 5% or more of the shares of a listed company sell their original non-tradable shares through listing in a stock exchange beyond the time limit as prescribed in the preceding item, the amount of the original non-tradable shares sold may not exceed 5% of the total shares of the company within twelve months and not exceed 10% of the total shares of the company within twenty-four months.

Article 28

Where an original holder of non-tradable shares sells a large amount of shares held thereby, he may place them to target investors.

Article 29

The measures for the administration of the shares held by foreign shareholders after the implementation of the share-trading reform scheme shall be separately prescribed.

Chapter V Information Disclosure

Article 30

Anyone that is obliged to disclose information on the share-trading reform shall timely perform the obligation of information disclosure, authentically, accurately and completely disclose the information and ensure that there be no false record, misleading statement or major omission in the information disclosed thereby.

Article 31

The notice on the meeting of relevant shareholders shall specify the rights of holders of tradable shares in their participation of the share-trading reform as well as the methods, conditions and time limit for them to exercise rights.

Article 32

The introduction on the share-trading reform shall include:

(1)

Information on the formation and every alteration of equity structure as of establishment of the company;

(2)

The holders of non-tradable shares that has brought forward the share-trading reform on the quantity and proportion of shares of the company, and explanations on whether there is any property right dispute, pledge or freezing, etc.;

(3)

Explanations of the holders of non-tradable shares on the quantity and proportion of shares of the company held thereby and the association relationship between each other;

(4)

Explanations of non-tradable shares and the actual controllers of the holders of non-tradable shares who hold 5% or more of the total shares of the company on the their holding of the company's tradable shares in the two days prior to the day when the board of directors announces the statement of the reform, and on the their purchasing and selling of tradable shares of the company within the previous six months prior to the day of announcement;

(5)

Specific contents of the share-trading reform;

(6)

Explanations of the holders of non-tradable shares on the measures for guarantying the fulfillment of their commitments;

(7)

Possible impact of the share-trading reform to the corporate governance;

(8)

Possible risks involved in the share-trading reform and corresponding plans to deal with the risks;

(9)

Names and contact information of the sponsor and law office that offer professional services for the share-trading reform;

(10)

Explanations of the sponsor and law office on the holding of the company's tradable shares in the two days prior to the day when the board of directors announces the statement of the reform, and on the purchasing and selling of he company's tradable shares within the previous six months prior to the day of announcement; and

(11)

Other matters that need to be explained.

Article 33

The sponsor's opinion shall include:

(1)

Whether the non-tradable shares of the listed company are under ownership dispute, pledge or freezing, and the impact of these issues on the implementation of the reform scheme;

(2)

Evaluation on the impacts of the implementation of the reform scheme on the rights and interests of the holders of tradable shares;

(3)

Conclusion on verification of the documents regarding the share-trading reform;

(4)

Feasibility analysis of relevant commitments in the reform scheme;

(5)

Explanations on whether there is any circumstance that may affect the sponsor to fairly fulfill its duties;

(6)

Other matters that the sponsor deems necessary to be explained; and

(7)

Sponsor's conclusion and the reasons therefor.

Article 34

The letter of opinions of independent directors shall include the explanations on impacts of the share-trading reform on the improvement of corporate governance structure, protection of rights and interests of shareholders, the long-term development of the company as well as other important matters.

Article 35

The notice on the meeting of relevant shareholders, the result of the voting at the meeting of relevant shareholders, letters for soliciting votes as well as the abstract of the statement of share-trading reform shall be disclosed on the designated newspapers and periodicals.

The statement of share-trading reform, the letter of opinions of independent directors, sponsor's opinion, legal opinion of law office and the scheme on implementing the share-trading reform shall be disclosed in full text on the websites of the company and the stock exchange where the company is listed.

The stock exchange shall set up a special column on its website to gratuitously provide services of information disclosure for the share-trading reform of listed companies.

Article 36

Where the implementation of a share-trading reform scheme involves the decrease or increase in shareholding and thus results in the change of the total shares held and controlled by shareholders, the Regulations on the Takeover of Listed Companies, the Measures for the Administration of Information Disclosure of Shareholder Equity Changes of Listed Companies and the present Measures shall be abided by; where the obligation of tender offers is triggered due to the implementation of the reform scheme, the obligation of tender offers may be exempted upon application.

Article 37

A company shall, within two working days after the alteration registration of the listing of no-tradable shares is completed, publish the report on the share structure change after the share-trading reform on the designated newspaper and periodical.

Article 38

After the implementation of the share-trading reform scheme, if the prescribed selling period for the shares held by the original holders of non-tradable shares expires, the company shall make a relevant announcement ahead of three trading days to prompt the expiration of selling period.

Article 39

Any original holder of non-tradable shares who holds or controls 5% or more of shares of a company shall make an announcement within two working days as of the day when the shares sold through listing in the stock market amount to 1% of the company's total shares, and the trading of shares needs not to be suspended during the announcement period.

Chapter VI Intermediary Institutions

Article 40

Any intermediary institution that offers professional services for the share-trading reform shall comply with laws and regulations, faithfully perform its duties, be honest, faithful, diligent and responsible, maintain the interests of companies and shareholders, and may not seek for improper interests for its own institution or for any individual by taking advantage of its professional position.

Article 41

A sponsor shall fulfill the following duties:

(1)

Providing assistance in the formulation of the reform scheme;

(2)

Undertaking diligent survey for matters concerning the reform scheme;

(3)

Conducting verification and examination on the documents concerning the reform scheme;

(4)

Expressing opinions on the abilities of shareholders of non-tradable shares to carry out the consideration arrangement or fulfill commitments;

(5)

Issuing sponsor's opinion;

(6)

Providing assistance in the implementation of the reform scheme;

(7)

Providing assistance in the formulation and implementation of the measures for stabilizing the share price; and

(8)

Conducting continuous supervision and direction on the fulfillment of commitments by the parties concerned.

Article 42

Where a sponsor has any of the following associated relationship with a company, its major shareholders, actual holders and important related parties, the sponsor may not act as the sponsor for the share-trading reform of the aforesaid company:

(1)

The sum of shares of a listed company held by the sponsor and its major shareholders, actual holders and important related parties exceeds 7% of the total shares of the listed company;

(2)

The sum of shares of a sponsor held or controlled by a listed company and its major shareholders, actual holders and important related parties exceeds 7% of the total shares of the sponsor; or

(3)

The circumstance under which the representative, directors, supervisors, managers or other senior managers of a sponsor hold shares of a listed company or hold positions in a listed company and the fair performance of sponsor's duties may be thus affected.

Article 43

A sponsor shall designate one representative to be specifically responsible for the sponsoring work relating to the share-trading reform of a company. The sponsoring representative may not concurrently be responsible for the sponsoring work relating to the share-trading reform of any other listed company before the relevant voting procedures of the meeting of relevant shareholders of the former listed company are completed.

Article 44

The legal representative and the sponsor representative of a sponsor shall affix their signatures on the sponsor's opinion and assume corresponding legal liabilities.

Article 45

A law office or any of its lawyers that affixes his signature on the legal opinion shall perform the following duties:

(1)

Verifying the validity of the subjects involved in the share-trading reform;

(2)

Verifying the legal matters related to the reform scheme;

(3)

Verifying the legal documents related to the reform scheme;

(4)

Expressing opinions on the validity of the contents and executive procedures of the reform scheme; and

(5)

Issuing legal opinion.

Article 46

The law office or any of its lawyers that has affixed his signature on the legal opinion shall not have any relation that may affect its/his fair performance of duties with the listed company for which it/he provides professional services for the share-trading reform.

Article 47

The sponsor and its sponsor representative, and the law office and its lawyers that has affixed his signature on the legal opinion shall ensure that there be no false record, misleading statement or major omission in the sponsor's opinion and legal opinion issued thereby.

Chapter VII Supervision Measures and Legal Liabilities

Article 48

No entity or individual may conduct securities trading by taking advantage of insider information on the share-trading reform of a listed company, manipulate the market by taking advantage of the share-trading reform of a listed company, or forge or spread false information on the share-trading reform of a listed company. The CSRC shall investigate into and impose punishment on any above mentioned act, and shall transfer the case to the judicial organ for criminal liabilities if the circumstances are serious and a crime is suspected of being constituted.

Article 49

The stock exchange shall carry out special supervision on the abnormalities in market transactions during the course of the share-trading reform, and if any suspected insider trading or manipulation of the market is found, timely deter it and report it to the CSRC for investigation and handling.

Article 50

Any shareholder that fails to fulfill the commitments made thereby during the course of the share-trading reform shall be denounced by the stock exchange publicly, and the CSRC shall order it to make corrections and take relevant regulatory measures; if the legitimate rights and interests of any other shareholder are thus damaged, it shall assume the relevant legal liabilities.

Article 51

Where a sponsor or its sponsor representative submits the documents for the share-trading reform that contain any false record, misleading statement or significant omission, or fails to fulfill the obligation of investigation with due diligence or continuous guidance and direction, the stock exchange shall denounce it/him publicly, and the CSRC shall order it/him to make corrections; where the circumstances are serious, it/he shall be wiped off from the name list of sponsors or sponsor representatives.

Article 52

Where a law office or its lawyers that has affixed his signature on the legal opinion issues the legal opinion that contains any false record, misleading statement or significant omission, or fails to fulfill the obligation of verification, the CSRC shall order it/him to make corrections; where the circumstances are serious, the legal documents on the securities business issued thereby shall not be accepted temporarily.

Article 53

Where a company or any of its holders of non-tradable shares, a fund management company, securities company, insurance company or assets management company disturbs the normal decision-making of any other investor, manipulates the result of the voting at the meeting of relevant shareholders by any improper means, or undertakes improper exchange of interests, the CSRC shall order it to make corrections; where the circumstances are serious, the persons mainly liable shall be regarded as the person being prohibited from the market, and may not take the senior manager position in any listed company or securities company for a certain period or forever.

Chapter VIII Supplementary Provisions

Article 54

The power to interpret and amend the present Measures shall remain with the CSRC.

Article 55

The present Measures shall go into effect as of the date of promulgation. The Circular on the relevant Issues concerning the Piloting of the Share-trading Reform of Listed Companies (Zheng Jian Fa [2005] No. 32) and the Circular on the relevant Issues concerning Doing a Good Job in the Piloting Work relating to the Share-trading Reform of Listed Companies of the Second Batch (Zheng Jian Fa [2005] No. 42 ) shall be simultaneously repealed.