In order to promote the development of overseas investment and implement the “go-abroad” strategy better, the Minister of Commerce (hereinafter referred to as “MOC”) has been working together with relevant departments closely to establish institutional system regarding the administration for investing abroad at the aspects of recording, supervision, statistics and safeguarding rights, based on the Provisions on the Issues Concerning Examination and Approval for Investing and Establishing Enterprises Overseas.

On March 31, 2005, the MOC and the State Administration of Foreign Exchange jointly circulated the System of Prophase Report on Issues Concerning Overseas Merger & Acquisition of Enterprises (hereinafter referred to as “System”). The System is a part of the said institutional system and has become effective on May 1, 2005. The System is formulated with the view of obtaining information about overseas merger & acquisition of domestic enterprises and supplying efficient government service to such enterprises in a timely manner.

The Overseas Merger & Acquisition (hereinafter referred to as “OMA”) in the System shall mean the act of investing of domestic enterprise and its controlled overseas enterprise with Chinese funds, which is to acquire the assets or right to control of an overseas enterprise in the manner of purchasing such enterprise’s equity or assets (including equity participation, equity replacement, etc.).

According to the System, an enterprise shall make a timely report to the MOC and the commerce administration authorities of provincial level, and the State Administration of Foreign Exchange (hereinafter referred to as “SAFE”) and the foreign exchange administration authorities of provincial level, after determining its intention of OMA. The enterprises administrated by the State-owned Assets Supervision and Administration Commission of the State Council shall directly make reports to the MOC and the SAFE, while other ones shall make reports to the commerce administration authorities and foreign exchange administration authorities of provincial level, by whom their reports will be delivered respectively to the MOC and the SAFE later. Enterprises shall fill out and submit a Prophase Report Form on OMA when making such report.

Notwithstanding report of OMA pursuant to the System, an enterprise shall still go through the examination and approval of overseas investment in accordance with the Provisions on the Issues Concerning Examination and Approval for Investing and Establishing Enterprises Overseas and the Provisions on the Issues Concerning Examination and Approval for Investing and Establishing Enterprises of Mainland Enterprises in HKSAR and Macao SAR.

In addition, to impel enterprises to perform the obligation of report and ensure the government obtain full and true information about OMA of domestic enterprises, the System also expressly stipulates that all government departments concerned and their relevant officers shall strictly keep any trade secrets of enterprise obtained from its report confidential.

To sum up, the establishment of the System benefits domestic enterprises in obtaining support of government for OMA, and may help domestic enterprise control and reduce unnecessary the risk of OMA at the prophase by using the governmental resource.

── Nemo Wu