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Library - Codes and Rules - China



  1. Laws
  2. Accounting Standards
  3. Regulations
  4. Listing Rules
  5. Official Codes and Guidelines
  6. Circulars

1. Laws

The Company Law of the People’s Republic of China (2005)
The Company Law was first enacted in 1993 and subsequently amended in 1999 and 2004. It underwent a major amendment in October 2005, which came into effect on January 1, 2006.

Securities Law of the People's Republic of China (2005)
The Securities Law was passed on 1998 and revised in 2004. Like the Company Law, it underwent a major revision in October 2005, which came into effect January 1, 2006.

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2. Accounting Standards

Circular on Issuing the No.7 Questions and Responses of Information Disclosure Standards of Public Companies: Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standards
On February 15, 2007, the China Securities Regulatory Commission issued this circular, in the form of a FAQ (frequently asked questions), to deal with questions from companies on the disclosure of comparative financial accounting information during the transition period between the new and old accounting standards for both listed companies and companies going for an initial public offering. The regulator also provides a short case study at the end of the circular for further clarification on transitioning from the old to the new.

China's New Accounting Standards: A comparison with current PRC GAAP and IFRS
In August 2006, Deloitte, an ACGA member, released a report on China's New Accounting Standards, which were announced on February 2006. The report compares Accounting Standards for Business Enterprises (ASBEs), consisting of a new Basic Standard and 38 specific ASBEs, with current Generally Accepted Accounting Practice in Chinese Mainland (PRC GAAP) and the International Financial Reporting Standards (IFRS).

According to the report, "the ASBEs do not simply expand the disclosure requirements. They make fundamental changes to current Generally Accepted Accounting Practice in Chinese Mainland ("PRC GAAP"). Accordingly, they may have a significant impact on the result and/or net asset of enterprises and on the presentation of financial statements".

The new standards, the report states, are in line with current IFRSs, with certain modifications for "China's unique circumstances and environment", and will become mandatory for all listed Chinese companies from January 1, 2007.

China Accounting Standards Committee: www.casc.gov.cn
The China Accounting Standards Committee, under the Ministry of Finance, is the advisory body for setting Chinese accounting standards.

IASPlus: www.iasplus.com
IAS Plus, a website run by Deloitte, provides the latest accounting standards updates for China.

New Accounting Standards (February 2006)
In mid-February, Chinese accounting standards took probably their biggest step towards convergence with global standards following the release of a system based closely on International Financial Reporting Standards (IFRS). The Ministry of Finance in Beijing released the "Chinese Accounting Standards for Business Enterprises, consisting of 39 standards, with the goal of further faclitating the development of a market economy in China, raising the quality of financial information, and boosting investor confidence. The new Chinese standards do not completely replicate IFRS, but will incorporate many of its key principles into local standards.

Meanwhile, the same day, the Ministry of Finance also released a new set of 48 "Auditing Standards for Certified Public Accountants", which bring China's auditing rules more closely into line with the International Standards on Auditing. Both sets of standards take effect from January 1, 2007.

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3. Regulations

Regulations on Information Disclosure of Listed Companies
These regulations were approved by the China Securities Regulatory Commission's 196th chairman meeting on December 13, 2006. They were issued and became effective on January 30, 2007.

CSRC Directive on Quarterly Reporting (March 2003)
In March 2003, the China Securities Regulatory Commission (CSRC) released an amended directive on quarterly reporting (replacing its original directive of April 2001). This directive focusses on the "form and content" of such reports and requires listed companies to deliver them within one month after the end of the first and third quarters. These quarterly reports must include, among other things, a profit statement and data on total assets and net cashflow from operations.

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4. Listing Rules

Corporate Governance self-evaluation form for listed companies in Shanghai (ACGA translation)
As the first step in becoming part of the SSE Corporate Governance Index, listed companies have to fill out this self-evaluation questionnaire. The results are then posted on the website for public viewing and opinion. It is also passed on to the special committee of companies from the securities, fund management, insurance, credit rating and research sectors for comments as well.

Process for compiling SSE Corporate Governance Index (ACGA translation)
Shanghai Stock Exchange and the China Securities Index worked on the assessment method that would allow listed companies to apply and be part of the SSE Corporate Governance Index that was launched on January 2, 2008.

Listing Rules (May 2006)(in Chinese)

4a) Guidelines

Guidelines for Information Disclosure of Listed Companies (No. 6) – Material Contracts (June 18, 2007) (in Chinese)
This guideline clarifies the type of contracts that needed to be disclosed. Contracts involving 50% or above of the audited asset, or involving more than RMB 1 billion have to be disclosed, as do contracts that may have a material effect on the financial position of the company. In disclosing the contracts, the company should provide information on the risks of the contracts, information on the contracting party, the content of the contracts, the effect on the listed company and any auditing procedures.

Shenzhen Stock Exchange Guidelines for Information Disclosure of Listed Companies (No. 5) – Rumours and Clarifications (May 9, 2007) (in Chinese)
These guidleines urge listed companies to avoid rumours by being careful in their communications with analysts and the media regarding sensitive information. If rumours should surface, the company should report them to the exchange and the exchange would act accordingly, such as suspending trading of the stock. In addition, the company should investigate the incident and clarify the rumours to the Exchange in accordance with the guideline within two working days.

Shenzhen Stock Exchange Guidelines for Information Disclosure of Listed Companies (No. 4) – Investment in Securities (May 9, 2007) (in Chinese)
This Guideline specifies the procedural requirements for listed companies to invest in the stock market, the rules for disclosure of the investment plans are provided.

Shanghai Stock Exchange Guideline for the Administration of Disclosure of Directors, Supervisors and Members of Senior Management Shareholdings in the Listed Company (May 2007) (in Chinese)
The guideline requires directors, supervisors and members of the senior management to report to the company any changes to their shareholdings within two working days. The company, upon receiving the information, is required to inform the Exchange within another two working days.

Shanghai Stock Exchange Guidelines for the Administration of Information Disclosure Mechanism of Listed Companies (April 2007) (in Chinese)
These guidelines offer the basic principles for creating such a system by listed companies, including disclosure rules for board secretaries, directors, supervisors, senior management, and shareholders with shareholding of 5% or above. While the guideline says companies should be encouraged to disclose as much information as reasonably possible, it also specifies that inappropriate release of confidential information shall be punished.

Notice on Public Apology and the Flexible Sponsors Testing System of Listed Companies on the Small and Medium Size Enterprises Board (June 4, 2007) (in Chinese)
The notice specifies the procedure of public apology by companies listed on the small and medium size enterprise. They have to apologize to the investors if their directors are condemned by the Exchange or they fail in the disclosure assessment conducted by the Exchange. The notice also ‘encourages’ the listed companies to reappoint sponsors to ensure full compliance of the listing rules should one of the two situations mentioned above happen.

Guidelines for the Behaviour of the Majority Shareholder, the de facto Controller of Listed Companies in the Small and Medium Size Enterprise Board (May 17, 2007) (in Chinese)
This is a code of conduct for the majority shareholder or the de facto controller of companies listed in the small and medium size enterprise board. It tries to regulate conducts that may affect the legitimate interest of the minority and seeks to ensure material information disclosure. It forbids the de facto controller from trading stock of the listed company 15 days before the released of fixed time reports? (e.g annual report, quarterly reports), 10 days before profit announcements and other situations. The de facto controller is obliged to disclose the following information:

  • Change to shareholding
  • Material structure payments
  • Any pledging, freezing, judiciary abduction, trust creation or voting right restriction of share amount to 5% or more of the company’s total shares
  • Any other situations that may affect the share price or its derivatives

The guideline is also applicable to the agent, spouse and infant of the controlling person.

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5. Official Codes & Guidelines

Guidelines for Board of Directors Code of Conduct of Joint Stock Commercial Banks (Provisional) (September 2005)
The China Banking Regulatory Commission issued these guidelines on September 5, 2005, with an aim to standardize the operation of the boards of these banks. The provisional guidelines are divided into six sections, including the duties of directors, rules and procedures of board meetings and special committees under the board.

Guidelines on Corporate Governance Reforms And Supervision of Bank of China and Construction Bank of China (March 2004)
The China Banking Regulatory Commission issued these guidelines in 2003, which became effective in 2004. The guidelines were pilot joint-stock reforms of the Bank of China and China Construction Bank to ensure that within three years the banks would be "modern and internationally competitive" with "adequate capital, strict internal controls, safe and sound business operations, quality services and desirable profitability". The guidelines, divided into five chapters, concentrated on improving the banks' corporate governance, modernising their operating mechanisms, and raising their profit earning capacity.

China Code on Corporate Governance (January 2002)
On January 7, 2002 the China Securities Regulatory Commission and the State Economic and Trade Commission in Beijing issued a "Code of Corporate Governance for Listed Companies in China".

This is one of the most interesting codes in Asia--it does not merely lay down a series of abstract principles and general recommendations, it also reflects the governance challenges facing listed companies and their shareholders during this transition period in China's economic development.

China Guidelines on Independent Directors (August 2001)
On August 16, 2001 the China Securities Regulatory Commission (CSRC) issued new guidelines on independent directors of listed companies. On paper at least, these guidelines go well beyond comparable rules in many parts of the region, including Hong Kong. For a copy of the guidelines, visit www.csrc.gov.cn, go to the English version and look in "News Review". Read our highlights of these guidelines.

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5. Circulars

Notice of the Adjustments to the Offshore Investment Scope of Overseas Wealth Management Business of Commercial Banks on behalf of Their Clients
On May 10, 2007, the China Banking Regulatory Commission (CBRC) issued amendments to its 2006 "Notice of Overseas Wealth Management Business of Commercial Banks on behalf of their Clients". Amendments include allowing commercial banks to use foreign fund managers that have "been authorised or licensed by the overseas regulatory authorities which have signed with the CBRC a Memorandum of Understanding on Regulatory Cooperation with respect to Overseas Wealth Management Business of Mainland Commercial Banks on behalf of their clients (‘MOU’)".

Circular on Issues Concerning the Implementation of Trial Measures for the Administration of Overseas Securities Investments of Qualified Domestic Institutional Investors
This circular outlines how domestic institutional investors can apply for qualified domestic institutional investor (QDII) status and access offshore capital markets.

Circular on Issuing the No.7 Questions and Responses of Information Disclosure Standards of Public Companies (February 2007)
The China Securities Regulatory Commission issued a circular on February 15, 2007, to answer questions from companies on how to transition from the old accounting standards to the new ones that became effective on January 1, 2007. The FAQ deals with the disclosure of comparative financial accounting information between the new and old accounting standards for both listed companies and companies going for an initial public offering.

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