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Hong Kong

Chinese incorporated companies began listing their shares (H-shares) on the Stock Exchange of Hong Kong (SEHK) in 1993. Some H-share companies failed adequately to comply with SEHK disclosure requirements. Stricter compliance was necessary. In 1995 a combination of stricter enforcement by the SEHK and better understanding of the requirements by H-share companies resulted in substantial improvement. To ensure continued compliance with disclosure requirements, the SEHK issued extra recommendations, which should be observed in addition to the uniform disclosure requirements for all SEHK-listed companies.

Deemed VAT: The SEHK recommends H-share companies disclose in their results announcements and interim and annual reports any change in their accounting treatment, amount charged or credited to the profit and loss account (or amount used to set-off output VAT payable) and the deemed VAT balance carried forward.

Statutory Reserves: There are statutory regulations on transfers to the statutory surplus reserve and statutory public welfare fund. Issuers must observe those requirements and are encouraged to disclose the nature and basis of calculation of transfers to statutory reserves in results announcements and annual accounts.

Accounts receivable and loans: Issuers are encouraged to provide comment on credit policies adopted by them and comment on significant changes in the levels of accounts receivable.

Capital commitments: To enhance the quality of information provided in annual accounts, where capital commitments are material, consideration should be given to disclosing additional information on commitments. This may include: the purchase of plant and machinery, factory buildings, staff quarters and related facilities; and the development of new or existing products and businesses.

Use of proceeds: The use of proceeds from any share issues in the year should be disclosed. Use of any unused proceeds from issues in prior years should be discussed, as should any changes in the proposed application of proceeds.

Foreign currency exposure: Since H-share companies many generate some cashflow in foreign currency, companies should mention foreign exchange gains and losses, size of foreign currency assets and liabilities, and the controls monitoring their foreign exchange exposures.

Taxation: Companies should state the impact of recent changes to the Chinese tax system on the company.

Anne WY Chen and Clements Loong

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