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

2 Confidential Not for Distribution Doing Business in the New China  Why?  What?  Who?  How?

3 Confidential Not for Distribution 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

4 Confidential Not for Distribution 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

5 Confidential Not for Distribution 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

6 Confidential Not for Distribution 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

7 Confidential Not for Distribution 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

8 Confidential Not for Distribution Doing Business in the New China  What?  What type of business or service?  Products  Services  Technologies  Funding, Assets

9 Confidential Not for Distribution 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.

10 Confidential Not for Distribution Doing Business in the New China  Who?  Consider who are your  Customers  Competitors  Regulators

11 Confidential Not for Distribution 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

12 Confidential Not for Distribution 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

13 Confidential Not for Distribution 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

14 Confidential Not for Distribution 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

15 Confidential Not for Distribution 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

16 Confidential Not for Distribution Doing Business in the New China  How?  How are you going to get the venture started?  Partners  Investment form  Supply/distribution Networks

17 Confidential Not for Distribution Doing Business in the New China  Four Forms of Investment  Representative Office (RO)  Contractual Joint Venture  Equity Joint Ventura  Wholly Foreign-Owned Enterprise

18 Confidential Not for Distribution 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)

19 Confidential Not for Distribution 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.

20 Confidential Not for Distribution 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

21 Confidential Not for Distribution 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

22 Confidential Not for Distribution 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

23 Confidential Not for Distribution Doing Business in the New China  Negotiating  Flexibility  Government changes  Laws and regulations change  Officials change  Be prepared to change

24 Confidential Not for Distribution 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