PRC Now Allows Capital Contribution By Equity

In a move welcomed by both domestic and foreign investors, the State Administration of Industry and Commerce ("SAIC") promulgated the "Administrative Measures for Registration of Capital Contribution by Equity Stock" on 14 January 2009 ("Measures") and the Measures became effective on 1 March 2009.

The Measures liberalizing the use of equity in capital contributions are expected to encourage new investments in the People's Republic of China ("PRC") with the use of less cash. Corporate restructuring should also be facilitated especially in the light of the current international credit crisis.

Background

Currently, Article 27 of the PRC Company Law only allows capital contribution in cash or in kind such as physical property, intellectual property, land use rights which can be valued and freely transferable. The Article is also subject to restrictions under the other laws or other administrative regulations. The Measures are supplemental to Article 27 and provide