october, 2006 c l r hina aw eporter 中国法律报道 · ambushers create confusion among...

October, 2006 Volume 2, Issue 1

China Committee

Leadership

Co-Chairs Amy L. Sommers

[email protected]

Michael E. Burke [email protected]

Vice Chairs Qiang Bjornbak

[email protected]

Adam F. Bobrow [email protected]

James F. Grandolfo

James.Grandolfo@ hongkong.allenovery.com

Ann Marie Plubell

[email protected]

Jacob Simon jacobsimon@

paulhastings.com

Jun Wei [email protected]

Newsletter Editors

Qiang Bjornbak [email protected]

Paul B. Edelberg

[email protected]

Cameron J. Smith [email protected]

Welcome to the first China Law Reporter of the 2006-2007 ABA International year! With your help, we intend to make this year another successful one for the China Committee. As we embark on a new year, we note that the Committee's Chair (2003-04) and Co-Chair (2004-06) Ying White, has concluded her period of service and will now be a Senior Counsel to the Committee. Ying cares a great deal about building ties between the legal profession in the United States and in Greater China. She has devoted, and will continue to devote, considerable effort to introducing the Committee, the Section and the ABA to legal professionals in the PRC. Ying's service to the Committee, both as a Chair and earlier, as a Vice Chair, is greatly appreciated. We look forward to her continued involvement with the China Committee.

During the 2006-07 year, the Committee's Co-Chairs will be Amy Sommers (Shanghai) and Mike Burke (Washington, DC), and Adam Bobrow (Ankara, Turkey), Ann Marie Plubell (Washington, DC), Jim Grandolfo (Hong Kong), Qiang Bjornbak (Los Angeles) and Jun Wei (Beijing) will be Vice Chairs. In addition, Jacob Simon, an associate with Paul Hastings in Shanghai, joins the Committee’s leadership group as a Vice Chair.

We intend to have an aggressive calendar of events, including a series of mini-CLEs in Beijing, Shanghai, Hong Kong, Washington, DC, and elsewhere. We also will be active in the publications and policy fronts.

As you may know, ABA International’s Fall Meeting will be at the Biltmore Hotel in Coral Gables, Florida from November 8-11. At least four programs at the Fall Meeting touch on China issues: (1) The Complete Lawyer: Around the World in Ninety Minutes, at 11:15 a.m. on Wednesday November 8; (2) China's Market Economy Status in the Americas: Are Countervailing Duty Claims Viable for Domestic Industries Seeking Protection from Chinese Imports?, at 2:45 p.m. on Wednesday November 8; (3) Building Trust Across International Boundaries, at 9:30 a.m. on Friday November 8; and (4) A Comparative View of Counterfeiting Issues, at 4:30 p.m. on Friday November 10. The China Committee is also co-sponsoring a program Business Immigration Issues for International Practitioners, at 2:45 p.m. on Thursday November 9. The China Committee will also host a Committee breakfast at 8:00 a.m. on Thursday November 9. We encourage you to visit http://www.abanet.org/intlaw/fall06/home.html for more information about the Fall Meeting.

The Section’s Spring Meeting will be held May 1-5, 2007 at the Fairmont Hotel

CHINA LAW REPORTER 中国法律报道

REPORTING ON DEVELOPMENTS IN THE FOUR LEGAL SYSTEMS OF GREATER CHINA

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The Section of International Law: Your Gateway to Int ernat ional Prac t i ce 国际法分部：你的跨国执业之门

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in Washington, DC. The China Committee will have a significant slate of programs at the Spring Meeting.

All of the Committee’s activity mirrors a busy time in China’s legal development. Since the last edition of the China Law Reporter, the Chinese government has

• Promulgated new regulations affecting inbound (foreign purchaser of a Chinese company’s assets or equity) mergers and acquisitions;

• Issued a revised draft of the Administrative Regulations for Foreign-Invested Venture Capital (VC)

Enterprises public comments, which regulations would replace the VC framework that has been in place since 2003;

• Developed new rules governing initial public offerings, aimed at stabilizing China’s securities market by

meeting excess demand;

• Published new rules on the operation of foreign insurance representative offices in China and issued an opinion on the future development of China’s insurance sector;

• Issued a new, uniform corporate insolvency code that, for example, requires the payment of a company’s

creditors before that company’s laid-off employees; and

• Developed pilot measures on the scope of the value-added tax refund that might be enjoyed by foreign invested enterprises in their purchase of Chinese-made equipment.

This edition of the China Law Reporter reviews several legal developments in China. Robin Teow of Lehman, Lee & Xu reviews some of the intellectual property-related regulations that have been issued in connection with the 2008 Beijing Summer Olympics. Sandy (Feng) Lin of Lehman, Lee & Xu examines China’s changing mergers and acquisitions framework. She also reviews how the Chinese government has addressed gaps and conflicts as between the revised Company Law and regulations affecting registration of foreign-invested enterprises. Courtesy of the Jun He Law Firm, articles examine issues related to the takeover of listed companies in China and how the Shenzhen Stock Exchange regulates trades of transfer-restricted shares. The Jun He Law Firm also provides a list of laws and regulations issued between May 1, 2006 and June 10, 2006. Kara Phillips, the Collection Development Librarian/Associate Director of Seattle University’s Law Library, provides an overview of new books, articles, and websites related to Chinese law.

We are grateful to all of our authors for their contributions. We would also like to thank the China Law Reporter’s editors, Qiang Bjornbak, Paul Edelberg, and Cameron Smith for their hard work in putting together this edition.

We hope to publish the China Law Reporter every other month, and we need your help. Often, we are asked how one can become active in the China Committee. The easiest, and most visible way to get involved with the

Co-Chairs Message, continued


China Committee is to write for the China Law Reporter. If you have an article--no matter how short--please submit it to the editors.

Lastly, we encourage you all to visit frequently the China Committee’s homepage at http://www.abanet.org/dch/committee.cfm?com=IC860000 for the latest news on our activities. If you have any suggestions about policies, programs or publications that the China Committee might undertake, please let us know. We look forward to another active and successful year with the China Committee.

Amy L. Sommers, Esq. and Michael E. Burke, Esq., Co-Chairs, China Committee Amy Sommers i s a partner in the Shanghai o f f ic e o f Squire , Sanders & Dempsey L.L.P. Michae l Burke i s a s enior associat e in the Washington D.C. o f f i c e o f Wil l iams Mullen . RECENT DEVELOPMENTS

Beijing Olympics 2008

One world, one dream...

Robin Teow Beijing issues stern warning to show stealers The most spectacular sporting event on the planet will lift its curtain in less than two years in one of the most vibrant and dynamic cities in the world. While Beijing is still abuzz with the hum of bulldozers and construction works, sponsors for the 2008 Games have kicked off their intense marketing blitz in a race for marketing gold. Today, the Olympics are more than just heartwarming entertainment or a great get-together for athletes from around the globe to see who is fastest, strongest, or who breaks more world records. They have been virtually transformed from a venue for unity and international amateur competition to a moneymaking bonanza, becoming one of the most sought-after channels for advertising and marketing. The monetary benefits of the Olympics are clearly evident in the willingness and eagerness of some companies such as Coca-Cola, McDonald’s, Kodak and Lenovo to splash out hundreds of millions of dollars to join The Olympic Partnership program, a program which grants sponsors exclusive worldwide rights to use the Olympic rings in product labeling and advertising within a product category, in order to cash in on what is undoubtedly the most eye-catching and showy spending extravaganza in commercial history.


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Co-Chairs Message, continued

With more than 5 billion viewers and listeners from over 200 countries and regions expected to watch or listen to Olympic broadcasts, not to mention China’s booming consumer revolution, the Beijing Olympics presents a unique business opportunity and serves as a powerful marketing platform for international and domestic companies to build global brands and connect with hundreds of millions of consumers. For foreign enterprises wanting to tap the huge and flourishing Chinese market, a partnership with the 2008 Olympics offers an excellent opportunity for them to showcase their products and/or services, leveraging the Olympics momentum in order to enhance their brand recognition and, more importantly, build guan xi (connections) throughout China. In light of the huge financial impact of the Games and in particular, China’s enormous red-hot market for the forthcoming Beijing Olympics, some companies will deliberately find innovative ways to ingeniously associate themselves with the event and to misappropriate or capitalize on the resulting goodwill and popularity without paying for the right to do so. This is habitually referred to as ambush marketing or parasite marketing, and is often a hybrid of false advertising and intellectual property infringing acts. Broadly speaking, ambush marketing is a term used to describe any attempt by a company to exploit media attention or capitalize on the popularity of an event to promote its own products or services. In a narrow sense, ambush marketing refers to the direct and intentional efforts of one company to eclipse and to take the edge off a competitor’s official association with an event. The main objective of ambush marketing is, au fond, to confuse or mislead the public into believing that the company has an official connection with the event by revolving its advertising campaign around the event. While ambush marketing can occur at any event, it is most rampant in the sports marketing arena thanks to the potential universal audience that international sports events such as the FIFA World Cup and the Olympics attract and their unequalled popularity. Some famous examples of ambush marketing in Olympics history include:

• At the 1994 Winter Olympics in Lillehammer, Norway, sponsored by Visa, American Express ran ads claiming that Americans do not need a ‘visa’ to travel to Norway.

• At the 1996 Olympics in Atlanta, Nike strategically placed its slogans a ‘stone’s throw away’ from the main stadiums of the Games and erected a “Nike Village” in the vicinity of the official Atlanta Olympic Sponsor Village, thus overshadowing Adidas’s promotional efforts as the official sponsor.

• At the 2000 Sydney Olympics, Qantas Airlines devised the slogan “The Spirit of Australia”, which sounded remarkably similar to the Games’ slogan “Share the Spirit”.

Strictly speaking, ambush marketing does not involve infringement or illegal use of trademarks or symbols, thus providing no legal basis for an action especially if ambushers know what they are doing. Companies merely share an event’s publicity by attaching themselves to the event using creative marketing strategies without paying sponsorship fees to become the official sponsors. So why are event organizers or legitimate sponsors making such a ‘hoo-ha’ about this topic? It is argued that ambush marketing significantly subverts the integrity of an event and its ability to entice future sponsors. Ambushers create confusion among consumers, for that reason, negating the official sponsors’ clear recognition for their sponsorship role. In


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CHINA BRIEFS


addition, unauthorized associations diminish the value of the legitimate sponsors’ investment, threaten the exclusivity of rights granted to them, and discredit their marketing efforts. In order to maintain the dignity of the Olympics and to protect its respective IP rights, Beijing, keen to showcase its commitment to fight intellectual property offences and fully aware that its already fragile reputation concerning intellectual property rights and their enforcement is once again subject to intense international scrutiny with the hosting of the 2008 Olympics, has pledged to get tough on ambush marketing. A series of Olympics-specific intellectual property decrees and regulations such as the Beijing Regulations on the Intellectual Property Protection of Olympics-related Intellectual Property Rights and the Regulations on the Protection of Olympic Symbols have been specifically designed to protect the Games’ image. These regulations strictly outlaw any activities that might deceive the public into thinking that there is an existing sponsorship or other supportive relationship between the ambush marketers and the owners of the Olympic symbols. The Chinese Administration of Industry and Commerce has been given a significant amount of discretion to deal with ambushers. Beijing Municipal People’s Government has also vowed to carry out special operations to suppress ambush marketing. Furthermore, educational campaigns will be launched to enlighten the public about the fundamentals of intellectual property and the phenomenon of ambush marketing. It is proposed that Chinese people will, for the first time, appreciate what intellectual property infringement means on a national scale through China’s protection of Olympics-related intellectual property rights. The Olympic Games are an unavoidable stage for ambush marketing. Ambushers, with profits as their stimulus, will inevitably attempt to devise sophisticated and inventive strategies to accomplish their missions. While it is impossible to anticipate all avenues for ambush marketing with, more often than not, the bulk of such activity notoriously difficult to prove, those planning to crash what is set to be one of the most expensive and spectacular summer parties ever held in the history of the Olympics are strongly advised to reconsider, as Beijing steps up unprecedented offensive and defensive measures to inflict maximum penalties on and wipe out freeloaders. This article was written and contributed by attorney Robin Teow from the Beijing office of Lehman, Lee & Xu. Robin Teow can be reached at [email protected] or (86) (10) 8532 1919.


Establishing a Presence in China through Mergers and Acquisitions

Sandy (Feng) Lin

Though, on a global basis, mergers and acquisitions (M&A) were the prevalent method through which multinationals conducted foreign investment, previously, “green field” investments were, virtually, the only option available to foreign investors in China. However, this appears to have changed dramatically over the last several years, with the Chinese Government having introduced and consolidated various laws and regulations since 2002, with the intention of stimulating M&A-related activity. With the legal framework for structuring M&A activity in place, the robust growth of China's economy and its further liberalization of the domestic market after its accession to the World Trade Organization have worked together to fuel the accelerated pace of M&A activity in recent years. Statistics shows that China-related M&A transactions rose 50% in 2004 over the previous year. High profile foreign acquisitions include HSBC's US $1.74 billion acquisition of a 19.9% stake in the Bank of Communications and Anheuser-Busch's US $600 million acquisition of Harbin Brewery Group. It is foreseeable that M&A activity, which offers foreign investors a more immediate method of entering the China market as opposed to “green field” investment, will continue to boom in China in the years to come. This article will seek to provide a clear-cut overview of the current status of M&A practice in China so that foreign investors unfamiliar with China's investment environment and legal framework may obtain a basic understanding of how to establish a presence in China through M&A. A. Initial Analysis Suppose a US-based company, ABC Co., has preliminarily identified an ideal target company in China, which it intends to acquire. Before proceeding to conduct an in-depth financial assessment and to structure the prospective acquisition, it is advisable to take the following into consideration: 1. M&A transactions in China require examination and approval by Chinese government agencies: Unlike in many other jurisdictions, Chinese government agencies play a greater role in M&A transactions. The completion of a specific M&A transaction may require approval by several different Chinese government agencies, depending on factors such as the industry sector, the intended target, the ownership structure of the acquired target (for instance, State-owned vs. privately owned) and the size of the investment. Such approvals are not only a matter of formality, but may take considerable efforts and time to obtain.



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Set out below are several key Chinese government agencies which may be involved in an M&A transaction: • The Ministry of Commerce ("MOFCOM") - MOFCOM is the principal foreign investment examination and approval authority, and is entitled to generally supervise and approve M&A transactions. • The State Development and Reform Commission ("SDRC") - SDRC is responsible for both approving the foreign investment project application and supervising the restructuring of state-owned enterprises. • The State-Owned Assets Supervision and Administration Commission ("SASAC") - If the target enterprise is state-owned, approval of SASAC is required. • The China Securities Regulatory Commission ("CSRC") - If the target enterprise is listed on China's stock market, CSRC approval is required. • Other industry-specific regulators - If the target enterprise is in a regulated industry sector, approval of the industry-specific regulator will be required. For example, if the target is a Chinese bank, the approval of China Banking Regulatory Commission will be required. 2. The sectoral restrictions applicable to “green field” investment in China are also applicable to foreign-related M&A transactions: In China, investment projects are classified by industry sector, based on the Catalogue for the Guidance of Foreign Investment (the “Catalogue”), as “encouraged”, “permitted”, “restricted”, or “prohibited”. The Catalogue's classification impacts both the investment approval process and the maximum foreign shareholding permissible under Chinese law. Majority Chinese shareholding is mandated in several restricted industry sectors, while in other sectors, 100% foreign shareholding is not permitted. These restrictions are not only applicable to “green field” investments; they can not be circumvented by entering the market through M&A. Therefore, if the target of the abovementioned ABC Co. is in an industry sector forbidden for foreign investment, the acquisition plan should not be pursued. 3. Ascertaining the nature and desirable businesses of the target is essential to structuring the M&A transaction: Is ABC Co. interested in acquiring only some business departments of the target or the target as a whole? What is the nature of the target? Is it a State-owned enterprise, foreign-invested enterprise ("FIE"), domestic unlisted company or listed company? Different answers to these questions may lead to the application of different regulations and, therefore, different approval processes. Therefore, before moving forward in structuring the M&A, it is our recommendation that ABC Co. first answers these questions.


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B. Structuring and Implementing an M&A Transaction 1. Offshore transactions - the most effective method: If an investment in China is held through a special purpose offshore company (SPCO), the most effective structure is to keep the whole transaction offshore. That is, an acquiring SPCO can simply purchase the shares of the target SPCO under the laws of the applicable foreign jurisdiction. This will not trigger any approval requirement within China, unless any item (for example, the name of the shareholder) under the Articles of Association of the FIE needs to be changed, in which case the approval for the change of such items is much more straightforward, as opposed to that for an onshore M&A transaction. 2. Transactions domesticated within China - three general methods available: It is sometimes impossible to keep the transaction offshore, and therefore an M&A transaction within China is unavoidable. An M&A which is domesticated in China may generally be consummated through three ways: an equity acquisition, an asset purchase, or a statutory merger. The preferred acquisition form would depend on many factors. For example, if a foreign investor already has a reliable business associate in China, the foreign investor may wish to consider entering into an equity acquisition with the existing entity. The advantages of an equity acquisition with a local counterpart are, among others, ready local knowledge and channels to penetrate the local market and the comfort of having one less competitor. Of course, consideration should also be given to factors such as the reliability of available information regarding the financial and legal status of the target, the required governmental approvals, the transferability of assets, and the tax consequences of the structure. Equity Acquisition In an equity acquisition, the foreign investor acquires equity in an existing FIE or domestic enterprise from its foreign or Chinese shareholders. In either case, an equity acquisition agreement or new equity subscription agreement will be negotiated and concluded. An equity acquisition in an FIE requires the discretionary approval of the Chinese examination and approval authority that originally approved the formation of the FIE (i.e., MOFCOM or its local branch). Any other investors in the FIE will have a statutory pre-emptive right to acquire the interest being transferred. If the target is a purely domestic company, after the equity purchase the target will be converted into an FIE, and the approval process for the establishment of an FIE would be applicable. Generally speaking, purchasing equity is the quickest and cheapest method currently available, as the legal structure of the company usually remains unchanged, with only the equity ownership being transferred, allowing a continuation of the target's current business. However, it should be noted that the FIE, after the



acquisition, shall assume the target’s rights and liabilities. The foreign investor, the target, creditors and other parties may reach separate agreements regarding the disposition of the creditor's rights and liabilities of the target, provided that the agreement shall not result in any damage to any third party's interest or societal public interest. Any agreement on the disposition of creditors’ rights and liabilities shall be submitted to the examination and approval authority. Therefore, if the target has very complex and heavy debts, or cannot provide sufficient information about its indebtedness, this option of equity acquisition may be subject to considerable risks and be less appealing to a foreign investor. Asset Purchase A foreign investor may also acquire select assets of the target. In this case, the acquirer may “peel off” unwanted assets and liabilities. There is no change of equity ownership in an asset purchase, and the target shall retain all of its original creditors’ rights and liabilities. While time-consuming, this method may be attractive as the foreign investor will not need to worry about the uncertainty of the liabilities of the target PRC entity, which it will assume in the case of an equity acquisition. As a foreign company is not allowed to directly operate any assets in China without the establishment of a PRC presence, the foreign investor must establish an FIE to purchase the assets or use the purchased assets as the registered capital to establish a new FIE. Merger Statutory mergers are also sanctioned under PRC law. However, it should be noted that if a foreign investor has not established an FIE in China, it is not possible to conduct a merger. In accordance with the Regulations on Mergers and Divisions of FIEs, a statutory merger is defined as the combination of not less than two companies into one company through the conclusion of an agreement. There are two types of mergers: merger by absorption and merger by new establishment. Merger by absorption means the absorption by one company of another, and the company absorbing the other company will survive, while the absorbed company will be dissolved. Merger by new establishment means the combination of not less than two companies into a new company, with the combined companies being dissolved. A merger is subject to a multi-step approval process. Preliminary approvals must be obtained from both the surviving and the dissolving entities' approval authorities. A final approval is required from the surviving entity's approval authority.


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C. Some Practical Issues 1. Is it necessary to conduct legal due diligence in a merger and acquisition transaction in China? Most certainly. Due to the general lack of transparency or proper regulations in China, many Chinese companies may have certain irregularities incurred somewhere or some time in the course of its business. For example, the director of a company may deliberately fail to file the registration of title to a property in order to save costs. It is imperative that a foreign investor resolve any irregularities before entering into the transaction. Therefore, conducting a legal due diligence exercise is often just as important as conducting financial due diligence to determine the viability of the target company in a merger and acquisition deal. 2. How do you determine an accurate value of the company? The following components should be considered: legal due diligence, financial due diligence, and commercial due diligence. Furthermore, it is suggested that looking at the company from three different angles will also enhance the probability of obtaining the most accurate results. These three angles are: (i) the internal current performance of the target itself; (ii) current external factors; and (iii) future strategy of target and network, which may include structure, sales, organization, marketing and human resources. 3. What are the tax consequences of an M&A transaction? China offers various tax subsidies and incentives to attract foreign investment. For example, acquisitions that result in foreign equity holdings of 25% or more qualify for FIE tax benefits. In addition, foreign manufacturing facilities are generally entitled to an income tax exemption for the first two profit-making years, and a 50% deduction thereafter. Taxes that apply to an M&A transaction may include: (i) 0.05% stamp tax on the value of the transaction, applicable to both the seller and the buyer on equity and asset acquisition; (ii) 10% withholding tax on capital gains applicable to sellers of equity in existing FIEs; (iii) 5% business tax on transferring property and intangible assets, applicable to sellers in an asset acquisition; (iv) 3-5% deed tax on land and buildings, applicable to buyers in an asset acquisition; (v) 30-60% real estate capital gains tax, applicable to sellers on the basis of capital gains from the resale of granted land; and (vi) 2% value-added tax (VAT) on machinery and equipment, applicable to sellers on the basis of certain equipment. It is also important for companies considering equity acquisitions to exercise particular care regarding contingent tax liabilities. This article was written and contributed by attorney Sandy Lin who is from the Beijing office of Lehman, Lee & Xu. Sandy Lin can be reached at [email protected] or (86) (10) 8532 1919.



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China Issues Implementing Opinions on Approval and Registration of Foreign-invested Enterprises

Feng (Sandy) Lin

On April 24, 2006, the State Administration for Industry and Commerce ("SAIC"), the Ministry of Commerce ("MOFCOM"), the General Customs Administration ("Customs") and the State Administration of Foreign Exchange ("SAFE") jointly issued the Implementing Opinions on Certain Issues Concerning the Application of Laws Governing the Approval and Registration of Foreign Invested Companies ("Implementing Opinion"). Subsequently, in order to clarify certain provisions under the Implementing Opinions, SAIC issued a circular ("SAIC Circular") on May 26, 2006. Both the Implementing Opinion and the SAIC Circular were issued to deal with the confusion caused by the overlaps or conflicts between China's laws governing FIEs, on the one hand, and the newly revised Company Law of the People's Republic of China ("Company Law") and the Regulations of the People's Republic of China on the Administration of Company Registration ("Company Registration Regulations"). Both the Company Law and the Company Registration Regulations guide the approval and registration of foreign investment enterprises ("FIE") in China and became effective on January 1, 2006. Below are some major provisions under the Implementing Opinions and the SAIC Circular: Application of Foreign Investment Laws According to the 1st provision of the Implementing Opinions, the registration of FIEs is generally governed by the Company Law and the Company Registration Regulations. However, if the laws governing FIEs, which include the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures ("EJV Law"), the Law of the People's Republic of China on Sino-Foreign Cooperative Joint Ventures ("CJV Law") and the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises ("WFOE Law"), conflict with certain provisions of the Company Law and the Company Registration Regulations, the laws governing FIEs prevail. If all the above laws and regulations (i.e., the Company Law, the Company Registration Regulations, the EJV Law, the CJV Law and the WFOE Law) fail to cover certain provisions, the relevant provisions in the administrative regulations, decisions of the State Council and other rules and regulations (as opposed to laws) relating to FIEs shall apply. This provision attempts to answer the following question: if certain provisions in the FIE laws conflict with those in the Company Law and the Company Registration Regulations, or if neither the FIE laws nor the Company Law and the Company Registration Regulations cover certain provisions, which provisions shall be followed? Although it certainly helps to resolve the problems, companies may still need to make inquiries with MOFCOM or SAIC (or their local branches), as those agencies may hold a different view on whether a



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certain conflict exists, or on whether administrative regulations, decisions of the State Council or other rules and regulations relating to FIEs apply to a particular situation. Organizational Structure The Implementing Opinions provide more unequivocal rules as to the organizational structures of FIEs of various categories: an EJV or CJV shall establish a board of directors as its highest authority according to the EJV Law and the CJV Law, and may set up other internal organizations according to its articles of association, whereas a WFOE or a foreign investment joint stock company ("FJSC") shall adhere to the Company Law’s requirement that the shareholders' meeting or shareholders' general meeting be its highest authority. According to the SAIC Circular, a FIE established before January 1, 2006 may decide at its sole discretion whether to change its articles of association or not. If it decides to change the articles, the changes require the approval of the original approval authority (i.e., MOFCOM or its local branch) and shall be filed with the registration authority (i.e., SAIC or its local branch). Requirement for Proof of Qualification and Identification When applying to set up a new FIE, the foreign investor is required to provide a "proof of qualification or identification", which shall be: (1) notarized by a notary public in the home country of the foreign investor, and (2) "authenticated" by the Chinese embassy (or consulate) in that country. An investor from Hong Kong, Macau or Taiwan shall provide "proof of qualification or identification" notarized by the local notary public. Investment within China by FIEs According to the Implementing Opinions, upon its establishment, an FIE may make investment in China without a "qualification certificate", which is no longer required for such investment. The SAIC Circular further clarifies that Article 5 and Article 6 of the Provisional Regulations of the People's Republic of China on Investment within China by FIEs ("Provisional Regulations"), which were issued jointly by the Ministry of Foreign Trade and Economic Cooperation (the predecessor of MOFCOM) and SAIC on July 25, 2000, are abolished. This change has been hailed by foreign investors, for it has lifted the restrictions imposed on FIEs when investing in China. Article 5 of the Provisional Regulations had provided that an FIE cannot invest in China until its registered capital has been fully paid and it has begun to make profits. With the abolishment of Article 5, an FIE can now make investments in China whenever its sees fit. Moreover, the aggregate amount of an FIE's investment within China is no longer subject to a ceiling of 50% of its own net assets.



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Liaison Offices The Implementing Opinions confirm statements recently made by SAIC that FIEs may no longer register new liaison offices. FIEs with existing liaison offices may not amend or renew the registration of their liaison offices, and when the term of operation of an existing liaison office expires, the FIE must apply to deregister this liaison office or, if the FIE wishes to continue to have a presence in the location of the former liaison office, it may choose to establish a branch company. The SAIC Circular further clarifies that Chinese law does not forbid the existence of liaison offices; rather, FIEs may directly set up liaison offices without registering them with the registration authorities. However, SAIC and its local branches will continue to supervise the activities of liaison offices to make sure that they are only engaged in liaison activities, and do not carry out any operational activities. Registered Capital 1. Currency The Implementing Opinions provides that an FIE may denominate its registered capital in either RMB or a freely convertible foreign currency. If the registered capital is contributed in a currency other than the denominating currency, it shall be converted into the denominating currency based on the mid rate announced by the People's Bank of China on the date on which the capital contribution is made. 2. Time Limit for Capital Contribution The registered capital of a limited liability FIE may be made either in one lump sum or in several installments. If the registered capital is made in one lump sum, the investors of the FIE must make their capital contributions to the FIE within six months after the establishment of the FIE; if made in several installments, the first installment must be neither less than 15% of the FIE's total amount of registered capital nor less than the statutory minimum (i.e., RMB 100,000 for a Single Person WFOE and RMB 30,000 for other types of FIEs), and must be paid within 3 months. 3. In-kind Contributions Registered capital may not be paid in the form of labor, debt, the name of a natural person, goodwill, franchise rights, or collateral assets, among other things. The value of acceptable forms of in-kind contributions to an FIE's registered capital must be appraised by an asset appraisal institution registered in China, and, when the in-kind contributions are actually made, they shall be verified by a capital verification institution registered in China. In accordance with the Company Law, the value of cash contributions must not be less than 30% of the total amount of the registered capital of the FIE. This article was written and contributed by attorney Sandy Lin who is from the Beijing office of Lehman, Lee & Xu. Sandy Lin can be reached at [email protected] or (86) (10) 8532 1919.



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A New Era Arrives: Takeovers of Listed Companies Contributed by Jun He Law Firm ( 君合律师事务所)*

The “Administration of the Takeover of Listed Companies Procedures” has been amended by the China Securities Regulatory Commission (CSRC), in accordance with the Securities Law and the Company Law, to permit all shares to be publicly tradable. This new regulation combines the current “Administration of the Takeover of Listed Companies Procedures” and “Administration of Disclosure of Information on the Change of Shareholdings in Listed Companies Procedures”, and lays out the following structure for shareholding:

• If the percentage of the listed company’s shares held or controlled by the purchaser has reached 5% of the company’s issued shares, it is considered a warning point.

• If the percentage has reached 20%, the company’s officers will be required to provide a detailed report.

• If the percentage has reached 30%, it shall use the takeover-by-offer method or may apply to the CSRC for an exemption.

This article adopts a policy of encouraging fair, free-market principles for the purchase of publicly listed companies. I. Promoting Market Efficiency The obligatory takeover-by-general-offer system has to be adjusted to the obligatory takeover-by-offer system. The purchaser may carry out the takeover of a listed company, and gain the power to actually control the same, by means of takeover-by-general-offer or takeover-by-partial-offer method; Based on the materiality principle, the manners of the custody shall be appropriate to the amount of shares; The purchaser may increase its shares to a limited amount within a specified period of time. Taking into account the market demand after all shares have been publicly listed, the purchaser may increase its holdings by no more than 2% of its original shares each year after it completes the first 12 months’ purchase; The bid offer and post-takeover regulation of the takeover of tradable shares in the secondary market, as well as the creative methods such as acquisition by shares swap and asset acquisition through methods of private placement; It is necessary to simplify CSRC’s audit procedures and encourage use of an independent financial consultant. This article is clear about the responsibilities of the independent financial consultant and



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provides specific guidance for the consultant regarding how to supervise the takeover and restrict the purchaser via the open market system. II. Continuing to Maintain and Strengthen the Fair Market Principles The qualifications and capacity of the purchaser of the listed company shall include the scope of the concerned party, the payment in full, the continuity of the supervision, and the solicitation of the opinion from both the province and the city governments; The board of directors of the targeted company and the controlling shareholder, or another person with actual control of a listed company, shall rectify the matter on his/her own initiative, and the limitation or the guaranteed availability of transferring such listed company's shares held or controlled by the purchaser required for the takeover shall be in accordance with business regulations; Price restrictions require the offer price to match the market price. The base price is the daily average price during the 30 days of the takeover offer with no discount. The base price of takeover by partial offer is 5% of the total shares, and the deposit must remain at 20% of the total takeover amount; There are special requirements for senior administration transactions, including company management, rectification, information disclosure, and company evaluation; There are limited conditions in which the board may oppose the takeover. An opposing director who raises a proposal against the takeover is required to be approved by the board; The principle of fairness must be reflected in all state-owned, privately-owned and wholly foreign-owned enterprises. The exemption will not be granted for transfer of state-owned shares in state-owned enterprise across districts and across departments if the transfer is for different commercial purposes.

Shenzhen Stock Exchange Issues Notice Concerning Transfer-Restricted Shares Contributed by Jun He Law Firm ( 君合律师事务所)*

In order to regulate the trades of transfer-restricted shares of small and medium-sized enterprises, and protect the legal rights of small and medium-sized investors, the Shenzhen Stock Exchange issued the “Listing and Circulating the Transfer-Restricted Shares of Small and Medium-sized Enterprise Board Implementing Rules” on May 18, 2006. These rules shall be implemented from the publication date, in accordance with the statutes, the laws and the regulations in the Company Law, the Securities Laws, Administration of the Split Equity Structure Reform of Listed Companies Procedures, Administration of the Takeover of Listed Companies Procedure, and Shenzhen Stock Exchange, Share Listing Rules.



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The rules include 24 complete articles. Articles 1 through 7 are the general provisions that define the applicable scope of the rules, trade policies and information disclosures. Articles 8 through 19 contain the detailed rules for procedures, such as documents required for transfer-restricted shares to be tradable, the rectification reports issued by the sponsoring institution for the share segregation reform, and the procedures for the transfer-restricted shares to be publicly tradable. Articles 20 through 22 are the penalties for violations of this provision. Article 23 states that the Shenzhen Stock Exchange reserves the power of interpretation. Article 24 states that the provision shall be implemented from the publication date. Comments: The implementing rules have appropriate regulations for the general provision of selling transfer-restricted shares, the procedures and information disclosures for the selling of transfer-restricted shares of controlling shareholders and de facto controllers, and the placement for the specific investors. (1) In principle, there is no essential limitation on the transfer-restricted shares, but the procedural and information disclosure requirements are more stringent for the sale of the transfer-restricted shares. (2) The rules strictly require the shareholder of the transfer-restricted shares to fulfill his commitment or to undertake the shares segregation reform. The sale of the shares shall not affect his commitment. The rule emphasizes the sponsoring institution’s responsibility to supervise. (3) The rules sufficiently protect the rights of the small and medium-sized investors, and designate the responsibility to disclose information to the holder of the transfer-restricted shares and the listed company, including such responsibilities as reporting to the Shenzhen Stock Exchange and publishing the registered bulletin prior to the release of the restricted shares. (4) There are strict requirements for controlling shareholders and de facto controllers, such as forbidding them to sell the restricted shares before the listed company publishes the grand information bulletin. If controlling shareholders and de facto controllers sell the restricted shares such that they change control, they must follow the special procedures described and take on the special information disclosure responsibilities. (5) The rules adopt the placement solution for the special investors. This solution emphasizes the fairness of information disclosure and requires the listed company to hire legal counsel in order to guarantee the lawfulness of the placement procedure.



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Ministry of Finance and the State Tax Bureau Issue Notice Regarding Tax Rebates for Foreign Investment Projects

Contributed by Jun He Law Firm ( 君合律师事务所)* The Ministry of Finance and the State Tax Bureau issued the “Notice Relating to the Adjustment of Administrative Policy Scope of Tax Rebates of Foreign Investment Projects Involving the Purchase of Domestically Manufactured Equipment” (Cai Shui [2006] No.61, the “Notice”) on May 10, 2006. The Notice is intended to impact the “Tentative Measures on Tax Rebates to Foreign Invested Enterprises Purchasing Domestically Manufactured Assets” (“Tentative Measures”) issued on September 20, 1999. The Notice also describes the scope of those enterprises that are entitled to enjoy the benefits of tax rebates when purchasing State assets, and adjusts the scope of foreign-invested projects’ entitlement to tax rebates when purchasing domestically manufactured equipment. Finally, it also limits the domestically manufactured equipment to which tax rebates apply. * The asterisked articles in the “Recent Development” section of this issue are edited versions of articles published in the June 2006 issue of Jun He Legal Update, a publication of The Jun He Law Firm.

CHINA BRIEFS

List of Laws and Regulations From May 1, 2006 to June 10, 2006 Contributed by Jun He Law Firm ( 君合律师事务所)

I. Investment/Corporate 1. Notice by the State Administration of Foreign Exchange Concerning the Adjustment of Certain Foreign Exchange Regulations on Overseas Investments (2006-06-06) 2. Guidance Opinions for Regulating Business Expenses by Central Enterprises’ Responsible Persons (2006-06) 3. Supplementary Regulations on the Establishment of Investment Companies by Foreign Investors, Issued by the Ministry of Commerce of the PRC (2006-05-26) 4. Notice by the State Administration of Industry and Commerce Concerning the Implementation Opinions on Several Issues Related to the Application of Laws Governing the Examination, Approval and



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Registration of Foreign-Invested Companies (2006-05-26) 5. Notice by the Ministry of Science and Technology and the State Administration of Industry and Commerce Concerning the Abolition of Documents Related to the Contribution of High-Tech Expertise to Registered Capital (2006-05-23) 6. Notice by the Ministry of Finance and the State Taxation Administration Concerning Adjusting the Scope of Tax Refund Policies for Purchasing Domestically Manufactured Equipment by Foreign Investment Projects (2006-05-10) II. (International) Trade/Anti-Dumping 1. Notice by the State Development and Reform Commission, the Ministry of Finance, the Ministry of Health, the Ministry of Labor and Social Security, the Ministry of Commerce, the State Food and Drugs Administration, and the Legislative Affairs Office and the Malpractice Redressing Office of the State Council Concerning Printing and Distributing the Opinions on Further Regulating Market Pricing in the Drugs and Medical Services Market (2006-05-19) 2. Opinions of the State Council on Reforming and Improving Policies and Measures for Circulation of Food Staples (2006-5-13) III. Finance/Banking 1. Notice by the People’s Bank of China Concerning Issues Related to Adjusting the Housing Credit Policy (2006-05-31) 2. Notice by the State Administration of Foreign Exchange Concerning Issues Related to Adjusting the Foreign Exchange Policies on Certain Insurance Businesses (2006-05-23) IV. Securities and Capital Markets 1. Rules on Barriers to Securities Market Entry (2006-06-07) 2. Notice by the Shanghai Stock Exchange Concerning Promulgating the Guidelines of Shanghai Stock Exchange for Internal Control of Listed Companies (2006-06-05) 3. Notice by the China Securities Regulatory Commission Concerning Promulgating the Working Standards for Sponsors when Conducting Due Diligence (2006-05-29) 4. Notice by the China Securities Regulatory Commission Concerning Promulgating the Regulations on the



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China Briefs, continued

Takeover of Listed Companies (draft for solicitation of opinions) (2006-05-22) 5. Notice by the Shenzhen Stock Exchange Concerning Promulgating the Listing Rules of Shenzhen Stock Exchange (revised in May, 2006) (2006-05-19) 6. Notice by the China Securities Regulatory Commission Concerning Promulgating the Rules of the Contents and Formats of Information Subject to Disclosure by Public Companies No. 1 --- Prospectus (revised in 2006) (2006-05-18) 7. Notice by the Shanghai Stock Exchange Concerning Promulgating the Guidelines for the Contents and Formats of Stock Listing Announcements (2006-05-18) 8. Notice by the Shanghai Stock Exchange Concerning Promulgating the Listing Rules of Shanghai Stock Exchange (2006-05-18) 9. Notice of the Shenzhen Stock Exchange Concerning Promulgating the Guidelines of Shenzhen Stock Exchange for the Contents and Formats of Listing Announcements (2006-05-18) 10. Notice of the Shenzhen Stock Exchange Concerning Promulgating the Detailed Rules for Listing and Trading of Restricted Shares of Listed Companies on the Small and Medium Enterprises Board (2006-05-18) 11. Administrative Measures for Initial Public Offerings and Listing of Shares (2006-05-17) 12. Notice by the China Securities Regulatory Commission Concerning Abolishing the China Securities Regulatory Commission’s Procedures for Stock Issuance Examination (2006-05-17) 13. Sample of Shanghai Stock Exchange for the Meeting Procedures of the Boards of Directors of Listed Companies (2006-05-15) 14. Notice by the Shanghai Stock Exchange Concerning Promulgating the Trading Rules of Shanghai Stock Exchange (2006-05-15) 15. Notice by the Shenzhen Stock Exchange Concerning Promulgating the Trading Rules of Shenzhen Stock Exchange (2006-05-15) 16. Measures by the Issuance Examination Committee of the China Securities Regulatory Commission (2006-05-09)



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17. Notice by the China Securities Regulatory Committee Concerning Promulgating the Rules of the Contents and Formats of Information Subject to Disclosure of Public Companies No. 11 --- Prospectus of Listed Companies (2006-05-08) 18. Notice by the China Security Regulatory Commission Concerning Promulgating the Rules of the Contents and Formats of Information Subject to Disclosure of Public Companies No. 10 --- Application Documents for Public Offering by Listed Companies (2006-05-08) V. Intellectual Property/Hi-tech 1. Regulations on Protecting Rights to Transmit on Information Network (2006-05-18) VI. Entertainment/Sports/Media/Education 1. Notice by the State Food and Drug Administration Concerning Using Standard Names of Drugs in Drug Advertisements (2006-05-23) 2. Rules on Registration and Administration of Outdoors Advertisements (2006-05-22) 3. Reply by the State Administration of Industry and Commerce as to Whether the Anti-Unfair Competition Law Applies to Public Schools Taking Commercial Bribes (2006-05-15) VII. Real Estate/Construction 1. Urgent Notice by the Ministry of Land and Resources Concerning Furthering Ensuring the Strict Administration of Lands (2006-05-30) 2. Notice by the State Administration of Taxation Concerning Issues Related to Strengthening the Administration of Collection of Residential Housing Business Tax (2006-05-30) 3. Notice by the General Office of the State Council on Forwarding the Opinions of the Ministry of Construction and Other Departments on Adjusting the Structure of Housing Supply and Stabilization of Housing Prices (2006-05-24) 4. Reply by the State Administration of Taxation to Tax Issues on the Hotel Owners (2006-05-22)



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VIII. Labor 1. Reply by the State Administration of Taxation to the Issues of Collecting Business Tax on Contracted Labor Services (2006-05-24) IX. Litigation/Arbitration 1. Announcement by the Ministry of Justice Concerning the Issues Related to 2006 National Judicial Examination (2006-06-02) X. Tax 1. Reply by the State Administration of Taxation to Issues Related to Collecting Business Tax on Income from Services Provided by For-Profit Medical Service Providers (2006-05-23) 2. Notice by the Ministry of Finance and the State Administration of Taxation Concerning Printing and Distributing the Regulations on Specific Issues Related to Tobacco Leaf Tax (2006-05-18) XI. Drug/Food/Health/Certification/Safety 1. Notice by the State Food and Drug Administration Concerning Implementing the Urgent Notice by the General Office of the State Council Concerning Investigating and Penalizing In Accordance with Laws the Case of Counterfeit Drugs of Qiqihar Second Pharmaceutical Company Ltd. (2006-05-24) 2. Notice by the State Food and Drug Administration Concerning Further Strengthening the Supervision and Administration of Pharmaceutical Enterprises (2006-05-18) 3. Guidelines for the Examination of Sanitary Conditions of Enterprises Producing Health-Related Products (2006-05)



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ITEMS OF INTEREST

Kara Phillips Selected Recent English Language Books on Chinese Law China’s Takeover Law: Regulation and Reform by Hui Huang, Vandeplas Publishing, 114 p. ISBN: 1600420036 http://vandeplaspublishing.com/catalog/product_info.php?products_id=76&osCsid=251fa91f01e89e6383762723011ebf8f From the Publisher: “This book is largely prompted by the two recently promulgated regulations governing takeovers in China. The goal of this book is to critically examine the legal takeover regime in China and to put forward proposals for reform. To outline the discussion, Part II describes the stock market, the takeover law, and the takeover activities in China. Two legislative goals, namely contestability of takeovers and shareholder protection, are set out in Part III. Under these principles, Part IV and Part V explore the issues of tender offer and anti-takeover defenses, respectively. Specifically, Part IV focuses on information disclosure and other major rules relating to takeovers. It appears that these rules are in line with the international norm and acceptably workable in the context of China. Furthermore, Part V explores the serious problems that are associated with anti-takeover defenses. China's law seems to be both over-inclusive and under-inclusive in this respect. After an in-depth comparative analysis of the legal regimes in the U.S., U.K. and Australia, it is apparent that those regimes are not suitable for China's local conditions. Lastly, this book proposes a regime in which shareholders could veto the use of takeover defenses ex post, while requiring that certain defensive measures be decided ex ante. This proposal could well suit China's needs because it not only gives shareholders sufficient protection, but also preserves necessary flexibility for management to efficiently respond to truly undesirable tender offers.” The Chinese Legal System: a Concise Guide edited by Thomas Chiu, Ian Dobinson and Mark Findlay, Cavendish Publishing Limited, 250 p. ISBN: 1845680006 http://bookshop.blackwell.co.uk/jsp/welcome.jsp?action=search&source=3266474136&type=isbn&term=1845680006#readmore From the Publisher: “China is probably the world's most rapidly expanding market. This opportune guide to China's law and legal systems comes at a time when western businesses are seeking to expand into China and provides business people and students alike with a basic knowledge of the law in the PRC from the introduction of the "Four Modernizations" and "open-door" policies in 1979 to the present day. Beginning with a brief historical overview the text outlines and examines: the legislative, executive and judicial systems;



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Items of Interest, continued

problems concerning the Chinese legal system today; various collections of laws, both Chinese and English; substantive law including criminal, civil, administrative, contract and company law; criminal and civil procedure; alternative dispute resolution in the context of the Chinese tradition of mediation; and current issues affecting the development of legal practice.” Debating Political Reform in China: Rule of Law vs. Democratization by Suisheng Zhao, M.E.Sharpe, 295 p. ISBN: 07651732-3 http://www.mesharpe.com/mall/resultsa.asp?Title=Debating+Political+Reform+in+China%3A+Rule+of+Law+vs.+Democratization From the Publisher: “The growing disconnect between China's market-oriented economy with its emerging civil society, and the brittle, anachronistic, and authoritarian state has given rise to intense discussion and debate about political reform, not only by Western observers, but also among Chinese intellectuals. While some expect China's political reform to lead to democratization, others have proposed to strengthen the institution of single-party rule and provide it with a solid legal base. This book brings the ongoing debate to life and explores the options for political reform. Offering the perspectives of both Western and Chinese scholars, it presents the controversial argument for building a consultive rule of law regime as an alternative to liberal democracy, provides several critiques of this thesis, and then tests the thesis through empirical studies on the development of the rule of law in China.” Selected Legal Articles Amy Sommers & Lindsay Zhu, The Amended Law to the Company Law of the People’s Republic of China: Encouraging Foreign Investment, Strengthening Shareholder Protections, 1 Bloomberg Corporate Law Journal 289 (2006). An analysis of the newly amended company law with comparisons to the prior law: http://www.ssd.com/files/tbl_s29Publications/FileUpload5689/9688/Sommers.pdf Vivian Chen, Market Report: China: the Great Leap In-House, Corporate Counsel, June 2006, at 92. Discusses whether local expertise or Western Legal training is preferable for in-house counsel in China. Symposium: Legal Implications of a Rising China, 7 Chicago Journal of International Law 1 (2006). Contains the following articles:

• International Law and the Rise of China by Eric Posner and John Yoo p. 1 • The Fire-Breathing Dragon and the Cute, Cuddly Panda: the Implications of China’s Rise for

Developing Countries, Human Rights and Geopolitical Stability by Randall Peerenboom p. 17 • Information Mechanisms and the Future of Chinese Pollution Regulation by Ruoying Chen p. 51 • Allowing Girls to Hold Up Half the Sky: Combining Norm Promotion and Economic Incentives to

Combat Daughter Discrimination in China by Lesley Wexler p. 79 • Are Chinese Companies Taking Over the World? by Mitchell Silk and Richard Malish p. 105


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• The Laws of the People’s Republic of China: an Introduction for International Investors by Eu Jin Chua p. 133

• The Making of an Antitrust Law: the Pending Anti-Monopoly Law of the People’s Republic of China by H. Stephen Harris, Jr. p. 169

• The Emperor is Far Away: China’s Enforcement of Intellectual Property Rights Protection, 1986-2006 by Joseph A. Massey p. 231

• WTO: Time’s Up for Chinese Banks: China’s Banking Reform and Non-Performing Loan Disposal by Weitseng Chen p. 239

Online Resources China IT Law http://www.chinaitlaw.org/ From the Publisher: "China IT Law" is a free and comprehensive web resource for information & technology laws of China, with most also translated into English. This law project is a non-profit initiative of the China Internet Project (CNIP) of the Chinese Academy of Social Sciences. Our goal is to provide information on China's IT regulations in Chinese and English, for academics, business executives, journalists, officials and others in the world.” The China Trade Law Report http://www.lawjournalnewsletters.com/pub/ljn_international/ The China Trade Law Report is a new fee-based online journal published by Law Journal Newsletters. A bi-monthly publication, it covers “emerging international trade issues in China as well as the greater Pacific Rim.” Check out the editorial board of directors at: http://www.lawjournalnewsletters.com/links/ljn_international.html The Chinese Law Prof Blog posted links (8/27/06) to the Chinese language version of the Enterprise Bankruptcy Law and the Partnership Enterprise Law: http://lawprofessors.typepad.com/china_law_prof_blog/. Doing Business in China: A Country Commercial Guide for U.S. Companies www.buyusa.gov/china/en/ccg.html This comprehensive online handbook, authored by the by U.S. embassy staff, contains chapters on doing business in China, political and economic development, selling U.S. products and services, leading sectors for U.S. export and investment, trade regulations and standards, investment climate, trade and project financing, business travel, contacts, and market research and trade events. Contributed by Kara Phillips, Collection Development Librarian/Associate Director, Seattle University Law Library. Kara Phillips can be reached at [email protected].


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Committee Help Wanted The China Committee is looking for assistance with the following projects:

• The Committee’s Year-in-Review Article; • A 5-Year Review of China’s WTO Implementation; • The Next Editions of the China Law Reporter; and • Review of the links pages on the Committee’s website.

If you are interested in assisting with these projects, please contact the Committee’s Co-Chairs, Amy Sommers ([email protected]) and Michael Burke ([email protected]).


China Law

Reporter 中国法律报道

About the China Committee This committee supports ABA members with interests in China-related legal matters. Committee work, both in the U.S. and in Greater China (the Chinese mainland, Hong Kong, Taiwan and Macau), includes review, analysis, comment and information-sharing on matters of law, legal practice and related policy. Within Greater China, the China Committee works to facilitate links and understanding between US and local legal practitioners and law students and to further the development of the rule of law, including implementation by China of its WTO commitments. Visit the China

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ABA International will host its 2006 Fall Meeting in Miami from November 8-11. The China Committee is co-sponsoring five programs at the Fall Meeting, as well as a Committee Breakfast on at 8:00 a.m. on Thursday November 9. We encourage you to visit http://www.abanet.org/intlaw/fall06/home.html for more information about the Fall Meeting.

About the China Law Reporter The China Law Reporter is a publication of the China Committee of the Section of International Law of the American Bar Association. Editors are Qiang Bjornbak, Esq., of the Law Offices of Qiang Bjornbak in Los Angeles, California and Vice Chair of the China Committee ([email protected]), Paul B. Edelberg, Esq., Counsel to Murtha Cullina, LLP in its Stamford, Connecticut office ([email protected]), and Cameron J. Smith, a law student at Northern Illinois University ([email protected]). Contributions of articles and other items for the China Law Reporter are welcome. Please submit to all of the editors simultaneously. The articles published in this issue reflect the views of their respective authors and are not necessarily the views of the China Committee, its leadership or the Section of International Law. Any questions regarding such articles should be directed to the author(s) in question. The articles in this issue should not be construed as legal advice in any particular transaction.