Presentation to:

The FIA Asia Derivatives Conference

Beijing, China

10 August 2005

By: Donald L. Horwitz

Director/General Counsel

Global Futures

ABN AMRO Incorporated

Doing Business in the New China:The Legal and Regulatory Perspective

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Doing Business in the New China

Why?

What?

Who?

How?

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Confucius: Smart Investor

The man has three different ways to act wise:

– The first is to think, which is the noblest– The second is to imitate, which is the easiest

– The third is by experience, which is the bitterest

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Doing Business in the New China

Why do Business in China?

What is your Mission, Vision, and Value-Proposition?

Have you identified your: Long-term Strategy Shorter-term Goals Risk/Reward Scenarios Cost-Benefit Opportunities

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Doing Business in the New China

Four False Assumptions

China is source of fast and easy profits Chinese people are both hardworking and inexpensive workers China has opened to “pure capitalism” and beginning to become Westernized or Americanized Chinese and the West share the same economic views

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Doing Business in the New China

Four False Assumptions

China is a Socialist Market Economy Government sets both social and political quotas and targets State mandated regulations

Investors Deal Primarily with: SOE State Agencies State Institutions

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Doing Business in the New China

Four False Assumptions

5000 year-old civilization US is 230 years

Chinese measure time differently Nothing is instantaneous Very focused

Relationships must be mutually beneficial

Chinese Culture is Paramount

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Doing Business in the New China

What?

What type of business or service? Products Services Technologies Funding, Assets

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Doing Business in the New China

Foreign Investment Opportunities

Traditionally has been strongest in supplying equipment for Chinese infrastructure

As economy has developed, wider opportunities in China’s emerging consumer market

Foreign investments in banking and financial services have been key to China’s growth over the

last twenty years.

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Doing Business in the New China

Who?

Consider who are your Customers Competitors Regulators

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Doing Business in the New China

Government: Socialist Market Economy

Highly centralized political system Increasingly decentralized economic system State control over key industries Services industries, home and cottage businesses and small retailers given relative freedom

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Doing Business in the New China

China Securities Regulatory Commission

Established in 1992 by the State Council Sole Regulator for Securities and Futures Markets Combination of the US SEC and CFTC

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Doing Business in the New China

China Securities Regulatory Commission

Regulates and Licenses Securities and Futures Markets Futures Clearing Organizations Intermediaries Investment/Trading Advisers

Supervises: Securities and Futures Exchanges Futures Association of China Securities Association of China

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Doing Business in the New China

Legal Framework

Three laws: Company Law Securities Law Securities Investment Fund Law

Supplemented by 300+ Rules, Regulations, Guidelines and Codes

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Doing Business in the New China

Legal Framework

Regulations on Securities and Futures Trading: General Prohibited Behavior

The Measures on the Administration of Futures Exchanges Amended by the CSRC effective 1 July 2002

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Doing Business in the New China

How?

How are you going to get the venture started? Partners Investment form Supply/distribution Networks

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Doing Business in the New China

Four Forms of Investment Representative Office (RO) Contractual Joint Venture Equity Joint Ventura Wholly Foreign-Owned Enterprise

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Doing Business in the New China

Regulatory Landscape Presently, foreign parties not permitted to on China’s domestic futures exchanges. In August 2004, PRC Ministry of Commerce issued Closer Economic Partnership Arrangement between

Mainland China and Hong Kong (CEPA)

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Doing Business in the New China

CEPA Approval Process CEPA opens futures brokerage business to qualified Hong Kong Service Suppliers (HKSS) CEPA is the only recognized route for foreign investors to qualify Approved HKSS may own up to 49% in a PRC joint venture futures brokerage firm

Requirements registered with the Securities and Futures Commission of Hong Kong satisfies the requirements of the CSRC

No implementing rules so far from the PRC.

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Doing Business in the New China

Legal Contacts

Legal contracts based on trust and confidence

Contracts are not absolute or unalterable: Helping steps to create long-term relationships Details and relationships are important in the negotiations

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Doing Business in the New China

Legal Contracts

Prepare in both Chinese and English Chinese version prevails in a later dispute

Use existing contracts as examples

Know the authority level of the counterparty

Choice of Law PRC Hong Kong

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Doing Business in the New China

Contract Preparation

Use simple, clear phrases Regulations spelled out Assumptions stated

Define obligations as Mutual Reciprocal

Avoid Long Lists

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Doing Business in the New China

Negotiating

Flexibility Government changes Laws and regulations change Officials change

Be prepared to change

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Doing Business in the New China

Conclusion

Lessons Learned

Patience Nothing happens overnight It takes time to find the proper partner

Patience is key in doing business in the New China

Leave arrogance home

Q/A