The 2nd Meeting of Interna

　　The International Advisory Committee of ChinaSecuritiesRegulatory Commission (the Advisory Committee) convenedits secondmeeting in Shanghai recently. Ms. Laura M Cha,Vice-Chairman of theCommittee, hosted the meeting. Mr. Shang Fulin,Chairman of theCSRC and the Advisory Committee of the CSRC, and Mr.Gui Minjie,Vice-Chairman of the CSRC, attended the meeting. Presentat themeeting also included senior officials from the CSRCdepartments,the CSRC regional offices, Shanghai Sto

ck Exchange,Shenzhen StockExchange, Shanghai Futures Exchange, China SecuritiesDepository& Clearing Co., Ltd. and the Securities AssociationofChina.

　　In his keynote speech, Mr. Shang Fulin first reviewednewdevelopments related to the topics at the first meeting oftheAdvisory Committee “Bond Market Development” and “RiskManagementof Securities Companies”. He then gave a briefing on thepastefforts and consultation areas with regard to “PromotionofInstitutional Investors”, the first subject of the meeting.Heended with the background and basic ideas behind the pilotreformprogram on non-tradable shares, which has attracted wideinterests.Mr. Gui Minjie provided a summary on the past effortsandconsultation area concerning “Reform in Corporate GovernanceofListed Companies”, the second subject of the meeting.

　　Mrs of the Advisory Committee at the meeting acknowledgedChina’spast efforts in bond market development and risk managementofsecurities companies, and were hopeful about the progress inthefuture.

　　The Advisory Committee mrs and domestic attendees of themeetingdiscussed a number of issues around the theme “PromotionofInstitutional Investors”, namely, ways to expand sources andsizesof long-term investments in the capital market, to foster thecenterinstitutional investors for development of the capitalmarket, todeliver more strategic long-term investment vehiclesforinstitutional investors, and to enhance regulatory andcooperativesystems, etc. The Advisory Committee mrs called for:

　　l preferential tax policies combined with steps taken togeneratehigher and steady investment returns to encouragelong-terminvestment from institutional investors, which are the keyelementsfor capital market development

　　l measures for promoting innovation in investment productsandmarket systems to make the capital market appeal to the publicandaccommodate diversified returns and risk preferences

　　l efforts to create more blue-chip stocks as the marketbackbonesrepresenting national economic mainstream while providingfinancingopportunities for high-growth potential businesses

　　l an active role of institutional investors in upgradingcorporategovernance of listed companies, as well as endeavorsofinstitutional investors to upgrade their own governancestructureand the standard of investment management with adherencetolong-term investment philosophy and integrity inprofessionalconduct

　　l fair playing ground for both domestic andinternationalinstitutional investors

　　l promotion of cooperation between regulatory bodies infieldsrelating to threshold conditions, risk control,informationdisclosure, accountability, etc., to enhance regulationsof a broadrange of investment products and investors, prevent anddeterillegal or improper conducts and potential market risks.

　　Issued under the subject “Corporate Governance ofListedCompanies” discussed by the Advisory Committee mrs coveredChina’schoice of corporate governance model, approaches to thesolution to“Dominant Shareholding by Non-tradable Shareholders”typical instate-controlled listed companies and “Insider Control”typical inthe listed companies controlled by private businesses,upgrade ofIndependent Directors Scheme, introduction of shareincentivemechanism, supervision of de factor controller andtheinternational movement of corporate governance since“Enron’sCollapse”. The Advisory Committee mrs concluded thatcorporategovernance is a global concern and china should choose itsownmodel in light of its domestic circumstances while payproperattention to the practical effects of various systemarrangements.They also called for:

　　l firm adherence to the ethos that investors are the rootforgrowth of the market, effective protection of thelegitimateinterests of investors, particularly those of the publicinvestors,and firm stance on any misconducts that damageinvestorinterests;

　　l clear delineation of responsibilities for directors,supervisorsand senior management of the listed company as well ascertifiedpublic accountants, efforts to improve proceduresrelating toappointment, dismissal, remuneration and accountabilityfor theabove, and effective employment of various checks andbalancesmechanisms;

　　l effective ning of civil liability and legal punishmentsystemstogether with a powerful administrative penaltiesmechanism;efforts to intensify deterrent power of accountabilityandpunishment mechanism

　　l establishment of incentives for senior managements to committointerests of companies and shareholders as a whole by studyingboththe positive and negative effects of the managementincentivemechanism in other developed markets over the past fewdecades

　　l attention to the recent move in corporate governanceenhancementin other counties, drawing useful experiences whileleaving outthose remedial practices that had gone too far

　　The International Advisory Committee of the CSRC wasestablishedas an advisory body of experts under the CSRC in June2004 with theapproval of the State Council. The CSRC engageseminent experts,scholars, and individuals from internationalfinancial community toserve a two-year term as mrs of the AdvisoryCommittee. TheAdvisory Committee convened its first consultationmeeting inOctober 2004, which will take place once or twiceannually in thefuture.

　　China Securities Regulatory Commission

　　(This English version by Shenzhen Securities Information Co.,Ltd.is for your reference only. In case any discrepancy existsbetweenthe Chinese and English context, the Chinese version shallprevail.)