In order to fill the coffers of the National Social Security Fund (the “NSSF”), the State Council promulgated the “Interim Measure on Collecting Fund for Social Security by Reducing State-owned Shares” (the “Reduction Measure”) on June 12, 2001, requiring that any joint stock company (“JSC”) with state-owned shareholders reduce its shareholding by an amount equal to 10%25 of the capital raised (the “Mandatory Reduction”) at the time of its initial public offering (“IPO”) or follow-on public offering (“FPO”) on the A-share market or H-share market, by handing in proceeds from selling its shares in the amount equal to 10% of the capital raised or by transferring the to-be-reduced shares to NSSF for their selling. Due to the negative impacts of the Mandatory Reduction on the stock market, the State Council decided to terminate the implementation of the Mandatory Reduction in domestic stock market in 2002. However, Mandatory Reduction still applies when it comes to H-share IPOs or H-share FPOs.
