Regulations on Administration of the Financial Institutions with Foreign Capitals of the People’s Republic of China

Promulgated by Decree No.340 of the State Council of the people’s Republic of China on December 20, 2001

Chapter 1 General provisions

1. In an effort to meet the demands of opening up and economic development, intensify and improve the management of financial institutions with foreign capitals, and promote the steady operation of banking industry, Regulations on Administration of the Financial Institutions with Foreign Capitals of the people’s Republic of China (the Regulations) are hereby formulated.

2. The financial institutions with foreign capitals stated herein refer to the following financial institutions approved for establishment and operation in China according to the provisions of the related laws and regulations of the people’s Republic of China.

(1) The China-headquartered banks with the foreign capitals (hereinafter referred to as the solely funded banks);

(2) The branches of foreign banks in China (hereinafter referred to as the branches of foreign banks);

(3) The banks jointly invested and operated by the foreign financial institutions along with the domestic companies and enterprises (hereinafter referred to as the jointly funded banks);

(4) The China-headquartered financial service companies with foreign capitals (hereinafter referred to as the solely funded financial service companies);

(5) The financial service companies jointly invested and operated by the foreign financial institutions along with the domestic companies and enterprises (hereinafter referred to as the jointly funded financial service companies).

3. The financial institutions with foreign capitals must adhere to the laws and regulations of the people’s Republic of China and shall never harm the social and public interests of the country.

All the regular business activities and lawful rights and interests of the financial institutions with foreign capitals shall be protected by the related laws of the people’s Republic of China.

4. The people’s Bank of China (pBOC) shall be the competent authority for managing and supervising the financial institutions with foreign capitals, and the branches of the pBOC shall conduct the regular management and supervision of the aforesaid financial institutions within their scopes of power.

Chapter 2 Establishment and Registration

5. The registered capitals for the solely funded banks and the jointly funded banks shall be no less than CNY300 million or the freely convertible currencies of the same value. The registered capitals for the solely and jointly funded financial service companies shall be no less than CNY200 million or the freely convertible currencies of the same value. The registered capitals shall be the paid-up capitals.

The branches of foreign banks shall be granted by their head offices the operating funds in the form of freely convertible currencies with a value of no less than CNY100 million.

The pBOC may, according to the business scopes of the financial institutions with foreign capital and the need of prudent supervision, increase the minimum quota of the registered capitals or operating funds and specify the relevant Renminbi shares.

6. If the solely funded banks or financial service companies are to be established, the applicants shall meet the following conditions:

(1) Having a status as the domestic financial institutions;

(2) Having the representative offices which have been operated in China for over 2 years;

(3) Claiming the total assets of no less than USD10 billion at the end of year before the applications are filed;

(4) The financial supervisory systems are well established in the countries or regions where their headquarters are based, and they receive the effective supervisions from the competent authorities of the said countries and regions;

(5) Having obtained approvals from the competent authorities of the said countries and regions;

(6) Other prudent conditions defined by the pBOC.

7. If the branches of foreign banks are to be established, the applicants shall meet the following conditions:

(1) Having the representative offices which have been operated in China for over 2 years;

(2) Claiming the total assets of no less than USD20 billion and the capital adequacy ratio of no lower than 8% at the end of year before the applications are filed;

(3) The financial supervisory systems are well established in the countries or regions where their headquarters are based, and they receive the effective supervisions from the competent authorities of the said countries and regions;

(4) Having obtained approvals from the competent authorities of the said countries and regions;

(5)Other prudent conditions defined by the pBOC.

8. If the jointly funded banks or financial service companies are to be established, the applicants shall meet the following conditions:

(1) The foreign joint investors shall be the financial institutions.

(2) The foreign joint investors shall have set up the representative offices in China.

(3) The foreign joint investors shall claim the total assets of no less than USD10 billion at the end of year before the applications are filed.

(4) The financial supervisory systems are well established in the countries or regions where their headquarters are based, and they receive the effective supervisions from the competent authorities of the said countries and regions;

(5) The foreign joint investors have obtained approvals from the competent authorities of the said countries and regions;

(6) Other prudent conditions defined by the pBOC.

9. Once the solely funded banks or financial service companies are to be established, the applicants shall file the written applications to the pBOC and submit the following documents.

(1) The letters of application for establishing the solely funded banks or financial service companies, including such main contents as the names, amounts of registered capitals and types of business to be developed for the said banks or financial service companies;

(2) Feasibility study reports;

(3) Articles of Association of the solely funded banks or financial service companies to be established;

(4) Business licenses (copy) and the letters of comments on their applications verified and issued by the competent authorities of the countries and regions where they are headquartered;

(5) Annual reports for the latest three years;

(6) Other materials deemed as necessary by the pBOC.

10. Once the branches of foreign banks are to be established, the head offices of foreign banks shall file the written applications to the pBOC and submit the following documents.

(1) The letters of application signed by the legal representatives of applicants, including such main contents as the names of branches of foreign banks, amounts of operating funds freely granted by the head offices and types of business to be developed;

(2) Feasibility study reports;

(3) Business licenses (copy) and the letters of comments on their applications verified and issued by the competent authorities of the countries and regions where they are headquartered;

(4) Annual reports for the latest three years;

(5) Other materials deemed as necessary by the pBOC.

11. Once the jointly funded banks or financial service companies are to be established, all the joint venture participants shall file the written applications to the pBOC and submit the following documents.

(1) The letters of application for establishing the jointly funded banks or financial service companies, including such main contents as the names of the said banks or financial service companies, names and financial contribution ratios of all the joint venture participants, amounts of registered capitals and types of business to be developed;

(2) Feasibility study reports;

(3) Contracts of joint ventures and Articles of Association of the jointly funded banks or financial service companies to be established;

(4) Business licenses (copy) and the letters of comments on their applications verified and issued by the competent authorities of the countries and regions where the foreign joint investors are headquartered;

(5) Annual reports of the foreign joint investors for latest three years;

(6) Related materials of the Chinese joint investors;

(7) Other materials deemed as necessary by the pBOC.

12. The documents enumerated in Article 9, Article 10 and Article 11 herein, except the annual reports, shall have the Chinese versions if they are written in foreign languages.

13. The pBOC shall conduct the preliminary reviews over the applications for establishing the financial institutions with foreign capitals and make the decisions on whether the complete application documents are to be accepted or rejected within 6 months since the said documents are received. If the application documents are accepted, the formal application forms shall be issued. Otherwise, the written notices shall be provided for the applicants to explain the reasons.

On special occasions where the pBOC can not complete the preliminary reviews and make decisions for acceptance or rejection within the periods defined hereinbefore, an acceptable extension shall be allowed and the applicants shall receive the notices in time. However, the extension shall never exceed three months.

14. The applicants shall complete the preparatory construction work within 6 months in receipt of the formal application forms. If the said work has not been completed within the defined periods, an extension of 3 months shall be allowed for the well-grounded delays once approved by the pBOC. In case the preparatory construction work still remains unfinished even after the extension, the decisions of the pBOC on acceptance shall automatically become ineffective. If the preparatory construction work is completed, the applicants shall submit to the pBOC the completed application forms along with the following documents.

(1) Lists and resumes of the chief personnel in charge in the financial institutions with foreign capitals;

(2) Letters of authorization for chief personnel in charge to be appointed in the financial institutions with foreign capitals;

(3)Certificates of capital verfication issued by the legal capital verfication institutions;

(4)Safety precautions and the materials about other business-related facilities;

(5) The letters of guarantee of the head offices for taking the responsibility for the taxes and debts incurred by their branches if the foreign banks intend to set up the branches;

(6) Other documents deemed as necessary by the pBOC.

15. The pBOC shall make the decisions on whether the applications are approved or rejected within 2 months in receipt of the complete and formal application documents for the establishment of the financial institutions with foreign capitals. If the applications are approved, the licenses of financial business shall be issued. Otherwise, the written notices shall be sent to the applicants for explaining the reasons.

16. If the financial institutions with foreign capitals are approved for establishing, the applicants shall use their licenses of financial business for handling the related proceedings in the administrative organs of industry and commerce, and receive their business licenses.

Chapter 3 Scope of Business

17. In conformity with the scopes of business defined by the pBOC, the solely and jointly funded banks and the branches of foreign banks are allowed to conduct some or all the businesses hereinafter:

(1) Attracting the public deposits:

(2) Issuing the short-term, mid-term and long-term loans;

(3) Handling the acceptance and discounting of bills;

(4) purchasing and selling the treasury bonds, financial bonds and other marketable securities (except the stocks) in foreign currency;

(5) providing the services and guarantees through letters of credit;

(6) Handling the domestic and overseas settlements;

(7) purchasing and selling directly or on commission basis the foreign exchanges;

(8) Engaging in the foreign currency exchanges;

(9) Conducting the inter-bank lending；

(10) Conducting the business of bank cards;

(11) providing the services of safe boxes;

(12) providing the services of credit investigation and consultation;

(13) Other businesses approved by the pBOC.

18. In conformity with the scopes of business defined by the pBOC, the solely and jointly funded financial service companies are allowed to conduct some or all the businesses hereinafter:

(1) Attracting a single deposit of not less than CNY 1 million or the freely convertible currencies with the same value and the depository period of not less than 3 months;

(2) Issuing the short-term, mid-term and long-term loans:

(3) Handling the acceptance and discounting of bills;

(4) purchasing and selling the treasury bonds, financial bonds and other marketable securities (except the stocks) in foreign currency;

(5) providing the guarantees;

(6) purchasing and selling directly or on commission basis the foreign exchanges;

(7) Conducting the lending business among the financial service companies；

(8) providing the services of credit investigation and consultation;

(9) providing the services of foreign currency trusts;

(10) Other businesses approved by the pBOC.

19. The regional scope and scope of service objects for the Renminbi businesses conducted by the financial institutions with foreign capitals shall be specified by the pBOC according to the relevant provisions.

20. If the Renminbi businesses are to be developed by the financial institutions with foreign capitals, they shall meet the following conditions:

(1) Having operated in China for over 3 years before their applications are filed;

(2) Having made profits for two successive years before their applications are filed;

(3) Other prudent conditions defined by the pBOC.

21. The financial institutions with foreign capitals shall submit the written applications to the pBOC ahead of schedule once they plan to develop the new businesses within the scopes of business approved by the pBOC. The pBOC shall make the decisions on whether to approve or reject the application within 60 days since the said documents are received. If the applications are rejected, the pBOC shall send the written notices to the applicants for explaining the reasons.

Chapter 4 Supervision and Management

22. The interest rates on deposits and loans as well as various commission charges shall be determined by the financial institutions with foreign capitals according to the related regulations of the pBOC.

23. Once the financial institutions with foreign capitals conduct the business of deposits, they shall pay and deposit the deposit reserves at the branches of the pBOC in the regions where they are located and the rates of said deposit reserves shall be formulated by the pBOC and adjusted according to the demand.

24. 30% of the operating funds for the branches of foreign banks shall take the form of interest-bearing assets appointed by the pBOC, including the deposits in the banks defined by the pBOC.

25. The capital adequacy rate shall not be lower than 8% for the solely and jointly funded banks and financial service companies.

26. The credit balances for a single enterprise or its affiliated enterprises shall not surpass 25% of the total capitals for the solely and jointly funded banks and financial service companies, unless otherwise approved by the pBOC.

27. The fixed assets of the solely and jointly funded banks and financial service companies shall not surpass 40% of their owner’s equity.

28. Renminbi shares of the total capitals and risk assets for the solely and jointly funded banks and financial service companies shall not be lower than 8%.

Renminbi shares of the combined amounts of operating funds and reserve funds as well as the risk assets for the branches of foreign banks shall not be lower than 8%.

The rates stated in the two items hereinbefore shall be subject to gradual adjustment by the pBOC according to related regulations.

29. The financial institutions with foreign capitals shall guarantee the liquidity of their assets. The balances of current assets and current liabilities shall not have a rate lower than 25%.

30. The foreign currency deposits attracted in China by the financial institutions with foreign capitals shall not exceed 70% of their total foreign currency assets in China.

The rates stated in the two items hereinbefore shall be subject to gradual adjustment by the pBOC according to related regulations.

31. The financial institutions with foreign capitals shall calculate and withdraw the reserve funds for doubtful debts (bad debts).

32. The financial institutions with foreign capitals shall recruit the Chinese certified public accountants approved by the branches of the pBOC in the regions where they are located;

33. Once the financial institutions with foreign capitals are found in any of the following cases, they shall be approved by the pBOC and handle according to law the required registrations in the administrations for industry and commerce.

(1) Setting up the branches;

(2) Changing or transferring their registered capitals, and increasing or decreasing the operating funds;

(3) Changing the names of institutions or business places;

(4) Adjusting the scopes of business;

(5) Changing the shareholders with over 10% of total capitals or shares;

(6) Revising the Articles of Association;

(7) Changing the senior executives;

(8) Other cases defined by the pBOC.

34. The financial institutions with foreign capitals shall submit the financial reports and other materials to the pBOC and its branches according to the related regulations.

35. The pBOC and its branches have the rights to regularly or at any time check and audit the deposits, loans, settlements and doubtful debts of the financial institutions with foreign capitals, to demand the related documents, materials and written reports within the defined periods from the said institutions, and to impose according to law the penalties and treatments upon them for their various infringements.

36. The pBOC and its branches shall have the right to require the financial institutions with foreign capitals to formulate the business regulations and establish and improve the business management, cash management and safe precaution systems according to the related regulations.

37. The financial institutions with foreign capitals shall be supervised and checked according to law by the pBOC and its branches, and shall provide the relevant documents, materials and written reports without any false information. They shall not find any excuse to refuse, hinder and conceal.

Chapter 5 Termination and Liquidation

38. In case the financial institutions with foreign capitals voluntarily terminate their business activities, they shall file the written applications to the pBOC at least 30 days before their business activities are terminated, and be subject to dissolution and liquidation once reviewed and approved by the pBOC.

39. If the financial institutions with foreign capitals fail to repay the due debts, they shall be ordered to suspend their business and complete the clearing-up work within the specified periods. The said financial institutions must apply to the pBOC for restarting their businesses once they have recovered their capacity of repayment within the periods of clearing-up. In case they are found unable to recover their capacity of repayment, they shall be subject to liquidation.

40. In case the financial institutions with foreign capitals are terminated because they are dissolved, revoked or declared bankrupt according to law, their liquidation work shall be handled in reference to the related laws and regulations of China.

41. When the liquidation work of the financial institutions is completed, they shall have their registrations cancelled in their original registration organs within the legal periods.

Chapter 6 Legal Responsibility

42. If the financial institutions with foreign capitals are found to be established prior to formal approvals of the pBOC or to conduct the unlawful financial activities, the aforesaid infringements shall be banned by the pBOC. The criminal liability shall be investigated according to the provisions of crime of unauthorized establishment of financial institutions, crime of illegally attracting the deposits or other crimes. If the offenses are not serious enough to investigate the criminal liabilities, all their illegal gains shall be confiscated by the pBOC. In addition, they shall be imposed a fine of once to five times the amount of the illegal gains. If there are no illegal gains or the illegal gains are less than CNY 100 thousand, a fine of not less than CNY100 thousand but not more than CNY500 thousand shall be imposed.

43. If the financial institutions with foreign capitals are found to conduct the financial activities beyond the approved scopes of business, regional scopes of business or scopes of service objects, the criminal liability shall be investigated according to the provisions of crime of unlawful business or other crimes. If the offenses are not serious enough to investigate the criminal liabilities, they shall be given warnings by the pBOC. All their illegal gains shall be confiscated by the pBOC. In addition, they shall be imposed a fine of once to five times the amount of the illegal gains. If there are no illegal gains or the illegal gains are less than CNY 100 thousand, a fine of not less than CNY100 thousand but not more than CNY500 thousand shall be imposed.

44. If the financial institutions with foreign capitals develop the unauthorized new types of businesses within the approved scopes of business, they shall be ordered by the pBOC to stop their unauthorized new businesses. All their illegal gains shall be confiscated by the pBOC. In addition, they shall be imposed a fine of once to three times the amount of the illegal gains. If there are no illegal gains or the illegal gains are less than CNY 50 thousand, a fine of not less than CNY 50 thousand but not more than CNY300 thousand shall be imposed.

45. If the financial institutions with foreign capitals are found to conduct the businesses against the provisions of Chapter 4 herein, they shall be given warnings by the pBOC. All their illegal gains shall be confiscated by the pBOC. In addition, they shall be imposed a fine of once to three times the amount of the illegal gains. If there are no illegal gains or the illegal gains are less than CNY 50 thousand, a fine of not less than CNY 50 thousand but not more than CNY300 thousand shall be imposed.

46. If the financial institutions with foreign capitals are found to infringe the related provisions herein by refusing and hindering the lawful supervision and checking or submitting the false documents, materials or written reports, they shall be given warnings by the pBOC and a fine of not less than CNY 100 thousand but not more than CNY500 thousand shall be imposed.

47. If the financial institutions with foreign capitals are found to infringe the related provisions herein by failing to submit on schedule the financial statements and the relevant documents, materials and written reports or failing according to the regulations to stipulate the related business rules and establish and improve the related management systems, they shall be given warnings and ordered to rectify within the specified periods by the pBOC. A fine of not less than CNY 10 thousand but not more than CNY100 thousand shall be imposed.

48. In case the financial institutions with foreign capitals are found to infringe the Regulations, they shall be subject to penalties according to the related provisions of Article 43, Article 44, Article 45, Article 46 and Article 47 under this chapter herein. Additionally, in case of the severe offense, the financial institutions concerned shall be ordered to suspend their business for rectification or have their business licenses revoked by the pBOC. And the pBOC shall cancel the post qualifications of those senior executives in the said financial institutions within a certain period and even during their lifetime in China.

49. Once the financial institutions with foreign capitals are found to infringe other laws and regulations of the people’s Republic of China, their infringements shall be handled according to law by the related competent authorities.

Chapter 7 Supplementary provisions

50. Once the financial institutions in Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan establish and operate the branches in Mainland China, the Regulations shall prevail.

51. The measures for administration of the representative offices of foreign financial institutions in China shall be formulated later by the pBOC.

52. The Regulations shall come into effect since February 1, 2002. Regulations on Administration of the Financial Institutions with Foreign Capitals of the people’s Republic of China promulgated on February 25, 1994 by the State Council shall be revoked in the meantime.

The China Securities Regulatory Commission

(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)