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Measures on Further Promoting Standardized Operations and Deepening the Reform in Overseas-listed Companies                    

Overseas-listed companies (referred hereinafter to Company/ies), a form of modern corporate system, which raise capital from overseas, should meet higher requirements in Companies' operations and higher degree of transparency in information disclosure. Currently, most of the Companies have made headway in adopting new systems transforming operational mechanism. A proportion of such Companies, however, has not yet completed the transformation of operational mechanism, leaving a number of problems in standardizing their operations and internal management. In order to further promote the strict compliance of relevant domestic and overseas laws and regulations on the part of the Companies and the fulfillment of consistent obligations to be undertaken by the Companies to investors, and establish a favorable image of the Companies in the international capital markets, the following measures are now raised regarding standardizing operations and deepening the reform of the Companies:

I. Separate the Operating Institutions of the Companies from their Holding Institutions

The Companies should improve corporate management in line with the requirements for a modern enterprise system. The Companies and their holding institutions (referring hereinafter to companies, entities and institutions as the major shareholders of the Companies with legal person qualification) must conduct independent accounting and independently assume responsibilities and risks. The holding institutions shall primarily exercise their authority as shareholders according to legal procedures and by way of general meetings of shareholders. Divisions under the Companies, especially the board, the management , the accounting and marketing sections shall be independent of the holding units. Those that are not independent so far must be separated from the holding institutions by the end of 1999. There is no superior-subordinate relationship between the internal offices of the holding institutions and their counterparts in the Companies, and therefore the former is prohibited from issuing documents or in any other forms to influence the independence of divisions under the Companies.

Holding institutions appoint their representatives as board members by law. Executives from holding institutions that serve concurrently in the Companies as chairman, vice-chairman of the board of directors or executive director should not exceed two in number, and should serve each of the posts with clearly defined job descriptions, assume all legal responsibilities and rights alike associated with that concurrent post, and ensure sufficient time and necessary professional knowledge to perform duties in the Companies. Executives from holding institutions are not allowed to serve concurrently as general/deputy general manager, chief accountant , marketing director and secretary to the board of directors of the Companies.

In case major businesses and assets of a state-owned holding institution have already been transferred to the Company, the divisions and corresponding functions of the holding institutions should be assigned and transferred gradually to or merged into another legal-person entity. A holding institution, which possess other assets and businesses rather than the main operations of listed companies should reduce the engagement of connected transactions with the Company and avoid competition in the same trade.

The social functions and non-operating assets of a holing institution should be gradually separated and socialized operation can be fulfilled by way of auction, merger, transfer to local governments, bringing to local insurance system or other means. In case a thorough separation is difficult to be achieved at present, strict management measures should be adopted to ensure a separation in accounting and personnel from the Companies.

In separating social functions and non-operating assets from the Companies, all relevant parties should strictly observe the agreement signed by the Company and its holding institution; where the separation is incomplete, continuous efforts should be made to complete the separation with a time limit. The newly listed Companies should work out specific plans to for the separation from their social functions and non-operating assets. Further solutions and responsibilities in connection with the relevant remaining issues should be clearly defined, otherwise the approval for listing shall not be granted. Local governments and relevant authorities at various levels should take active measures to support the restructuring of the Companies and their holding units.

III. Clarify Decision-Making Procedures of Companies, Strengthen the Responsibilities of Directors

The Companies should clarify the decision-making procedure in articles of the Association, and must not replace the general shareholders meeting with non-shareholders meeting or other forms in their decision-making process, nor should the Companies replace the board of directors with other forms (e.g. a joint meeting ) in making decisions. Regarding all major issues to be decided by the board of directors of the Companies, prior notice should be delivered within legally prescribed time to all executive directors and outside directors (directors who do not hold posts within the Companies) with sufficient documents, and the pre-set procedures should be strictly followed in the decision making process. A director may ask for supplementary material. In case at least one-fourth of directors or two and more external directors hold that the documents supplied to them are insufficient or not clear enough, they may jointly propose to defer the board meeting or part of topics under discussion, which should be adopted by the board of directors.

Directors of the Companies, bearing the obligations of sincerity and trustworthiness, should be diligent and dutiful. They are obliged to be present at board meetings and participate in a sincere and responsible manner at such meetings and express explicitly their ideas and views on the topics under discussion. Directors are not allowed to transfer their rights to vote to others in case they are not able to be present at a board meeting. He/she may entrust other directors to be on his/her behalf with written documents, but should assume corresponding responsibilities and legal liabilities to resolutions adopted by board meetings. Any written resolution bearing signatures of directors reached in other than a legal procedure shall have no validity as a resolution of the board meeting, even each of the directors has expressed his/her views in various forms. In case a resolution of a board meeting violates laws, administrative regulations and articles of the Association, the directors who vote for the resolution should bear direct responsibilities; a director who is proved to object the resolution upon voting as shown in the minutes and who votes against the resolution, shall be exempted from responsibilities; a director who resigns the vote or fails to be present at the meeting nor entrusts any other director to take part on his/her behalf shall not be dispensed from responsibilities; a director who clearly objects the move during discussion does not vote distinctly against the resolution shall not be dispensed from responsibilities. The board meeting should uphold the complete record of all discussed matters on all topics and resolutions. The secretary to the board of directors, assuming responsibilities for accuracy in note-taking, should conscientiously organize the note-taking, be responsible for sorting out the topics discussed at the meeting from the minutes, and sign at the resolution.

Focusing on the long-term development strategies of the Company, the board of directors may set up strategic decision-making, auditing and other professional committees where necessary. Prior to making decisions concerning market development, M&A, and investment in new sectors, the company should solicit from professional opinions of external consultative institutions that shall serve as important basis for a board meeting resolution for a project with an investment volume or M&A transaction volume exceeding 10% of the total assets of the Company.

V. Maintain Stability of the Companies' Senior Executives, Improve Their Qualifications

The election, designation or appointment senior executives of the Companies (referring hereinafter to directors, supervisors, general managers, deputy general managers, chief accountants, and secretaries to the board of directors) should strictly conform to relevant provisions in the PRC Company Law and the Compulsory Provisions for Articles of Association of Overseas Listed Companies. Without special reasons, relevant executives must not be unwarrantedly changed within the term of office as stipulated in the articles of association of the Companies; in case of adjustment, legal formalities and procedures should be performed, disclosure made to the public and report to the CSRC for file. For companies with well performance, the chairmen of the director boards and general managers of the Companies should be kept stable.

The board of directors and management of the Companies should represent a reasonable knowledge structure, and absorb talented people with such professional backgrounds as development strategy, accounting, marketing, technology development and law. The chairman of the board of directors, general manager, chief accountant and board secretary should participate in training regarding overseas listing as verified by the CSRC and pass qualification tests. The Companies should base their recruitment on both domestic and overseas human resources markets, select the best among all candidates for senior management positions, including accounting, market development, and technology development.

VI. Establish and Perfect Gradually the System for External Directors and Independent Directors

The Companies should increase the number of outside directors. When the board of directors concludes its term of service, external directors should hold more than half the board seats with at least two independent directors (referring to directors independent of the shareholders of the Companies and holding no positions in the Companies, similarly hereinafter). An external director should have sufficient time and necessary knowledge to perform his/her duties. In case an outside director performs his/her duties, the Company must supply necessary information and material. The views of an independent director should be specified in the board resolution. A related transaction of the Company must not take effect until an independent director signs based on the relevant requirements. Two or more independent directors may propose to the board of directors to call a temporary general shareholders' meeting. Independent directors may directly report to the general shareholders' meeting, the CSRC and other relevant agencies.

The Companies should continue to strengthen the functions of the supervisory committees, to clarify the responsibilities and rights of the supervisory committees, formulate concrete working rules and discussion procedures, so as to prevent the supervisory committees from becoming formalistic. The foremost responsibility of the Companies' supervisory committees is to truly exercise their duties and rights to examine of the Companies' financial conditions. The supervisory committees are entitled to learn and inquire the Companies' operations, and may ask the board secretary and the financial department to provide relevant materials pursuant to prescribed procedures, and assume the corresponding obligations of confidentiality. The supervisory committees may have its own suggestions for the accounting firms to be engaged, when necessary, may engage other accounting firm in the name of the Companies to conduct independent checking of the Companies' financial status, and may directly report to the CSRC and other related departments. The CSRC may entrust the Companies' supervisory committees to investigate specific issues. The Companies should increase the number of external supervisors (referring hereinafter to supervisors holding no positions at the Companies) in the supervisory committees. When a supervisory committee concludes its term of service, external supervisors should account for more than half of the total number of supervisors, with at least two independent supervisors (referring to supervisors holding no positions at the Companies and independent of the Companies' major shareholders). The Companies' outside supervisors should independently report to the general shareholders' meeting in connection with the loyalty and due diligence performance of the Companies' senior management.

VIII. Adequately Activate the Role of Board Secretaries

The Companies' board secretaries are appointed by the board of directors, and authorized to be responsible for coordinating and organizing the Companies' information disclosure, and contacting the investors, securities regulatory agencies and the media. The Companies' board of directors and management should pay attention to increasing the Companies' transparency, actively support the board secretaries to perform their duties, and provide necessary guarantee in terms of working facilities and personnel.

IX. Explore Incentives Measures for Companies' Senior Management

Companies, based on their own operational characteristics, as well as the principle of opening income to the public and improving transparency, may design special distribution and awarding methods to connect the material benefits of their senior management with Companies' business performance. The Companies, with the approval of the meeting of the shareholders, can award their senior management and personnel at the positions that demand operational innovation, that encounter high risks or tough challenges, or positions where business performance may easily be assessed, by adopting appropriate distribution methods.

The Companies must avoid and change the tendency of over-emphasizing fund-raising while neglecting the transforming of operational mechanism. They must organize their production and operational activities in accordance with the market competition, intensify reformation within the Companies, change their operational mechanism, and establish a scientific and effective management system.

The Companies should make their own decisions on the setting-up of various subordinate departments as well as on the qualifications, form, number and time for personnel recruitment. They can, in accordance with the relevant laws, regulations and articles of association, lay off their personnel, cancel labor contracts signed with their staff and workers; dismiss, expel their staff and workers.

The Companies should stop using the terms of "cadres" and "workers", and eliminate the differences in their status and positions. Administrative grades used by government institutions must not be followed. The management should be selected and depositioned through competition.

The Companies make their own decisions on the total annual wages and the Companies' internal distribution method.

The Companies must carry out reformation in the housing system in accordance with the relevant regulations of the State, and stop welfare allocation of houses for their staff and workers. The Companies must also participate in the reform of social security system, and handle their staff and workers' retirement pension, unemployment, medicare and other security programs in line with the related regulations of the State.

XI. Separate Government Functions from Enterprises, Standardize the Relations between Shareholders and the Companies in Capital Contribution

The administrative subordinate relations between the Companies and government departments should be renounced and their relations in assets, finance, personnel management and other aspects must be thoroughly separated. Government departments are not allowed to interfere in the production and operational management of the Companies, and must not collect from the Companies management fees or supervisory fees in whatever forms.

Organizations which exercise the state-owned rights to shares in the Companies or representatives of shareholders entrusted by organizations holding State-owned legal person shares in the Companies must, in accordance with the procedures prescribed by the law, attend meetings of the shareholders and exercise their rights in accordance with the law. No shareholding organizations and their entrusted representatives are allowed to bypass the meeting of shareholders to interfere in the production and operational management of the Companies, and in the appointments and terminations of the Companies' senior management; nor are they allowed to handle directly the approval procedures of the decisions on the election of personnel of the meeting of shareholders and decisions on the engagement of personnel on the board of directors.