Information disclosure is a compulsory obligation for an enterprise’s listing, and also a focus of regulatory review and oversight. The business of military and defence industry enterprises, often closely connected to national defence and security, can directly or indirectly involve state secrets or national security. As a result, information disclosure by these enterprises is subject to more stringent oversight and restrictions, but they can usually scrub confidential information, or be exempted from disclosure of the same, by carrying out relevant procedures.
Article 2 of the Provisional Measures for the Administration of the Work Associated with the Review of the Change in Corporate Form, Restructuring and Listing of Military and Defence Industry Enterprises and Institutions and Military Matters Related to Post-Listing Capital Operations, issued by the State Administration for Science, Technology and Industry for National Defence (SASTIND), states: “The military and defence industry enterprises or institutions mentioned in the review measures refer to the enterprises or institutions that have secured permission for scientific research and production of arms and equipment.” Article 22 specifies: “Once a filing entity has passed a military and defence matters review, it shall accept a disclosure review for information related to military and defence secrets in accordance with relevant regulations.”
The Provisional Measures for the Administration of the Disclosure of Special Financial Information When Military and Defence Industry Enterprises Seek Outside Financing, also issued by the SASTIND, states specific requirements for “scrubbing the confidential information first, and then applying for exemption from disclosure”.
Specifically, this provides: “For financial information involving state secrets, or that could indirectly access state secrets, a defence industry enterprise shall scrub the same before disclosure by using a substitute name, packaging or summary. For financial information that cannot be scrubbed, or would still pose a risk of leaking state secrets after scrubbing, the enterprise shall apply to the relevant state authority or stock exchange for exemption from disclosure under the disclosure measures.”
A military and defence industry enterprise or institution that has secured permission for scientific research and production of arms and equipment is required to apply to the relevant state authority or stock exchange for disclosure exemption, scrubbing the confidential information and disclosing the selected information via legal channels prudently in the course of restructuring and listing, and post-listing capital operations.
The SASTIND issued the Provisional Measures for the Administration of Records for Scientific Research and Production of Arms and Equipment on 25 July 2019, recording and filing a large number of activities involving scientific research and production of arms and equipment that require permission, which are specified in the Regulations for the Permission of Scientific Research and Production of Arms and Equipment, and the Implementing Measures for Permission of Scientific Research and Production of Arms and Equipment (2010), obviating the need to obtain permission from authorities again and making it possible to engage in such activities simply by filing.
After inquiring with the SASTIND and reviewing disclosed contents of publicly available listing cases – notably Huaqiang Technology, Great Microwave Technology and Zhejiang Chengchang Technology – the authors learned that when seeking a listing, these military and defence industry enterprises were also required to comply with the review measures and disclosure measures, applying to the SASTIND for a disclosure exemption and prudently disclosing relevant corporate information. This requirement goes beyond the scope of the enterprises specified in article 2 of the review measures.
EXEMPTION NOT REQUIRED
An enterprise listed on the National Equities Exchange and Quotations (NEEQ), which has secured an information disclosure exemption officially under the review measures and disclosure measures when applying for listing, is additionally required to carry out a military and defence matter review and secure an official reply for it in accordance with article 6 (1) of the review measures when it subsequently applies for listing and public offering of stock on the Beijing Stock Exchange, Shanghai Stock Exchange or Shenzhen Stock Exchange.
However, the authors failed to find any express provision about whether such an enterprise is required to apply for a new information disclosure exemption.
Through the SASTIND and listed military and defence industry enterprises – such as China North Communication Technology and Tong Yi Aerospace S&T – the authors established that an official consent reply relating to the information disclosure exemption obtained by a NEEQ-listed enterprise before listing has no expiry date, and may also be applicable to other exchanges, with no need to apply for another disclosure exemption as long as there are no new matters uncovered by the official reply when seeking a listing elsewhere.
Note that different branches of the SASTIND differ in their understanding and treatment of whether a NEEQ-listed enterprise needs to obtain an official consent reply for disclosure exemption again. In order to ensure a smooth listing, full communication should be made with the SASTIND to get a clear indication.
A military and defence industry enterprise seeking listing must secure an official consent reply for information disclosure exemption under the review measures and disclosure measures. Only being recorded, not permitted, for an enterprise to carry out the scientific research and production of arms and equipment is insufficient. The NEEQ-listed enterprise can continue to use the official reply it obtained unless there are new matters that require a disclosure exemption.
Guo Xin is a partner and Xie Aqiang is an associate at Grandway Law Offices
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