The free transfer of state-owned property rights is a special form of property right transaction among state-owned enterprises. Unlike general property right transfers, although it manifests as an economic act, it more reflects the will of state-owned assets supervision. At present, the main laws, regulations and policies governing the free transfer of state-owned enterprises in China include Interim Measures for the Administration of Free Transfer of Enterprise State-owned Property Rights (Guo Zi Fa Chan Quan [2005] No. 239, hereinafter referred to as the "Interim Measures"),Guidelines for the Work of Free Transfer of Enterprise State-owned Property Rights (Guo Zi Fa Chan Quan [2009] No. 25, hereinafter referred to as the "Work Guidelines"), andCompany Law of the People's Republic of China, etc.

I. Eligible Entities for Free Transfer of State-owned Property Rights

Based on the relevant provisions of the Interim Measures and the Work Guidelines, the free transfer of enterprise state-owned property rights refers to the free transfer of enterprise state-owned property rights among government agencies, public institutions, wholly state-owned enterprises, wholly state-owned companies, and state-owned one-person companies (a state-owned one-person company refers to a one-person limited liability company invested and established by a wholly state-owned enterprise, a wholly state-owned company, or a state-owned public institution, as well as a one-person limited liability company established by its re-investment).

All the above entities may act as the transferor (or transferee) in the free transfer of state-owned property rights. In addition, the free transfer of state-owned property rights of enterprises in which people's governments at all levels authorize their state-owned assets supervision and administration institutions to perform the duties of investors and their subordinate enterprises at all levels, as well as the free transfer (in or out) of enterprise state-owned property rights by central enterprises and their subordinate enterprises, shall be governed by the relevant legal provisions on the free transfer of state-owned property rights.

II. Preconditions for Free Transfer of State-owned Property Rights

The preconditions for the free transfer of state-owned enterprises can be summarized ascompliance with principles, clear ownership, and transfer in accordance with law. In accordance with the provisions of the Interim Measures, the free transfer of enterprise state-owned property rights shall comply with the following principles:

(1) Compliance with the provisions of relevant national laws, regulations and industrial policies;

(2) Compliance with the needs of adjusting the layout and structure of the state-owned economy;

(3) Conducive to optimizing the industrial structure and improving the core competitiveness of enterprises;

(4) Consensus reached through consultation between the transferor and the transferee.

The ownership of the state-owned property rights of the enterprise to be transferred shall be clear. The state-owned property rights of an enterprise with unclear ownership or ownership disputes shall not be transferred free of charge. The free transfer of enterprise state-owned property rights encumbered with security interests shall comply with the relevant provisions of the Guarantee Law of the People's Republic of China.

The transfer of state-owned equity in a limited liability company shall also comply with the relevant provisions of the Company Law of the People's Republic of China.

The free transfer of enterprise state-owned property rights into central enterprises and their subordinate enterprises shall comply with the requirements of the State-owned Assets Supervision and Administration Commission (SASAC) on reducing the management levels of enterprises, and the management levels of the enterprise after the transfer shall not exceed three levels in principle.

Where the property rights of a wholly state-owned enterprise are to be transferred free of charge to a wholly state-owned company or a state-owned one-person company, the enterprise shall first be restructured into a company system.

III. Prohibited Circumstances for Free Transfer of State-owned Property Rights

In accordance with the provisions of the Interim Measures, the free transfer shall not be implemented under any of the following circumstances:

(1) The core business of the enterprise to be transferred does not conform to the core business and development plan of the transferee;

(2) The intermediary institution has issued an audit report with a negative opinion, a disclaimer of opinion, or a qualified opinion on the financial report of the enterprise to be transferred as of the benchmark date of the transfer;

(3) The matters related to the resettlement of employees involved in the free transfer have not been approved by the employee representative congress of the enterprise to be transferred;

(4) There is no proper solution for the contingent liabilities of the enterprise to be transferred;

(5) There is no proper disposal plan for the debts of the transferor.

IV. Procedures and Requirements for Free Transfer of State-owned Property Rights

In accordance with the Interim Measures and the Work Guidelines, the procedures and requirements for the free transfer of enterprise state-owned property rights include the following seven items:

1. Conduct feasibility study;

2. On the basis of the feasibility study, deliberate in accordance with internal decision-making procedures and form a written resolution

   • If the transferee (transferor) is a wholly state-owned enterprise, the matter shall be deliberated by the general manager's office meeting; if a board of directors has been established, it shall be deliberated by the board of directors.
   • If the transferee (transferor) is a wholly state-owned company, the matter shall be deliberated by the board of directors; if no board of directors has been established yet, it shall be deliberated by the general manager's office meeting.
   • If a state-owned one-person company acts as the transferee (transferor), the free transfer matter shall be deliberated by the board of directors; if no board of directors is set up, the shareholder shall make a written resolution and affix the shareholder's seal.
   • The matters related to the resettlement of employees involved shall be approved by the employee representative congress of the enterprise to be transferred.

3. Notify the creditors of the enterprise (unit) and formulate a corresponding debt disposal plan;

4. The enterprise to be transferred shall conduct audit or asset verification in accordance with relevant regulations, and take the audit report issued by the intermediary institution or the asset verification result approved by the state-owned assets supervision and administration institution of the transferor as the basis for the free transfer of enterprise state-owned property rights;

5. Sign a free transfer agreement. The content of the transfer agreement shall not include clauses on liability for breach of contract such as re-transferring the property rights back;

6. Submit for approval to the relevant departments

   • Where the enterprise state-owned property rights are transferred free of charge between enterprises invested by the same state-owned assets supervision and administration institution, the matter shall be jointly submitted by the invested enterprises to the state-owned assets supervision and administration institution for approval.
   • Where the enterprise state-owned property rights are transferred free of charge between enterprises invested by different state-owned assets supervision and administration institutions, the matter shall be separately submitted by the invested enterprises to the corresponding level of state-owned assets supervision and administration institution for approval in accordance with the ownership relationship of the transferor and the transferee.
   • For enterprises implementing the separation of government and enterprise administration, where their state-owned property rights are transferred free of charge to be held by the invested enterprises or their subordinate enterprises, the matter shall be separately approved by the corresponding level of state-owned assets supervision and administration institution and the competent department.
   • Where the enterprise state-owned property rights of an enterprise invested by the state-owned assets supervision and administration institution of a lower-level government are transferred free of charge to be held by an enterprise invested by the state-owned assets supervision and administration institution of a higher-level government or its subordinate enterprises, the matter shall be separately approved by the lower-level government and the state-owned assets supervision and administration institution of the higher-level government.
   • Where the enterprise state-owned property rights are transferred free of charge within an invested enterprise, the matter shall be approved by the invested enterprise and reported to the corresponding level of state-owned assets supervision and administration institution for the record.

   Note：After the approval of the free transfer of enterprise state-owned property rights, if the transferor and the transferee adjust the proportion of property right transfer or there are major changes to the transfer agreement, they shall re-submit for approval in accordance with the prescribed procedures.

   For matters requiring approval by the SASAC, after going through internal procedures, the application documents and relevant materials shall be submitted to the SASAC. The SASAC shall put forward preliminary examination opinions within 5 working days after receiving the application documents and relevant materials. For problems found in the preliminary examination, the reviewers of the SASAC shall communicate with the central enterprise in a timely manner; if the central enterprise has no objection, it shall revise and improve the relevant materials and submit them to the SASAC within 5 working days. For matters with complete materials and meeting the handling conditions, the SASAC shall handle them in a timely manner.

7. Make accounting adjustments and go through the property right registration procedures.

V. Materials Required for Administrative Approval

In accordance with the Interim Measures and the Work Guidelines, an applicant for the free transfer of enterprise state-owned property rights shall submit the corresponding application materials, including:

(1) Application document for free transfer;

(2) Resolution of the general manager's office meeting or the board of directors on the free transfer, resolution of the shareholders' meeting, and approval document of the invested enterprise;

(3) Property right registration certificates of the transferor, the transferee and the enterprise to be transferred;

(4) Feasibility study report on the free transfer;

(5) Free transfer agreement signed by the transferor and the transferee;

(6) Audit report issued by the intermediary institution on the enterprise to be transferred as of the benchmark date of the transfer or the approval document of the asset verification result by the corresponding level of state-owned assets supervision and administration institution;

(7) Debt disposal plan of the transferor;

(8) Employee resettlement plan approved by the employee representative congress of the enterprise to be transferred;

(9) Other relevant documents.

VI. Circumstances Where State-owned Property Rights Can Be Directly Transferred Free of Charge Upon Government Decision

In accordance with the provisions of the Interim Measures, for the following free transfer matters, accounting adjustments shall be directly made on the basis of the audit report of the enterprise to be transferred for the previous year (or the most recent one) issued by the intermediary institution or the asset verification result approved by the state-owned assets supervision and administration institution, and the property right registration and other procedures shall be completed in accordance with regulations.

(1) The free transfer of state-owned property rights of an invested enterprise decided by the government to another invested enterprise of the same level of state-owned assets supervision and administration institution;

(2) The free transfer of state-owned property rights of an invested enterprise decided by a higher-level government between the state-owned assets supervision and administration institutions of higher and lower-level governments;

(3) The free transfer of state-owned property rights of an invested enterprise decided by the governments of the transferee and the transferor between the state-owned assets supervision and administration institutions of non-subordinate governments;

(4) The free transfer of state-owned property rights of an enterprise implementing the separation of government and enterprise administration decided by the government to be held by the state-owned assets supervision and administration institution;

(5) Other free transfer matters decided by the government or the state-owned assets supervision and administration institution in accordance with the needs of adjusting the layout, structure and restructuring of the state-owned economy.