Laws of the People's Republic of China

The People's Bank of China

Order of the People's Bank of China

No.5

In accordance with laws of Trust law of the People's Republic of China and Law of the People's Republic of China on the People's Bank of China etc, and regulations of the State Council, Administrative Rules on Trust and Investment Companies amended by the People's Bank of China, are hereby promulgated and carried out.

President of the People's Bank of China, Dai Xianglong

May 9, 2002

Administrative Rules on Trust and Investment Companies

Chapter I General Provisions

Article 1

These rules are formulated according to the "Trust Law of the People's Republic of China", the " Law on the People's Bank of China of the People's Republic of China" and relevant rules of the State Council, so as to strengthen supervision and administration of Trust and Investment Companies (TICs), standardize their operations and promote healthy development of the trust and investment industry.

Article 2

Trust and Investment Companies (TICs) hereof refer to financial institutions that are mainly engaged in trust business and established in accordance with " Company Law of the People's Republic of China" and these rules.

Article 3

"Trust" in these rules refers to following activities: The client entrusts his or her property to the trustee based on his or her trust in the trustee and the property is managed and disposed of by the trustee on his or her own name in a way that is in line with the client's will and aimed at benefiting the beneficiary or achieving other particular goals.

"Client" refers to individuals, legal persons or other legal organizations that have full capacity to perform civil action; "Beneficiary" refers to individuals, legal persons or other legal organizations that enjoy the benefits of entrusted property. The Client and the Beneficiary could be the same person, or otherwise. The trustee could be the beneficiary but not the only beneficiary of the same entrustment.

Article 4

"Trust business" in the regulation refers to the operation that a TIC accept the entrustment and deal with the entrustment affairs as the trustee for the purpose of operating and earning remuneration.

Article 5

"Entrusted property" in these rules refers to property accepted by a TIC through entrustment commitments. Any property obtained from the management, utilization, disposal or other operations of the entrusted property by a TIC shall also be regarded as entrusted property. Any property whose transaction is prohibited by laws and regulations shall not be used as entrusted property. Any property whose transaction is restricted by laws and administrative regulations can be used as entrusted property after being approved by relevant authorities.

The entrusted properties are neither a TIC's own assets nor its liabilities to the beneficiary. When a TIC ceases operation, the entrusted property shall not be included in assets to be liquidated.

Article 6

The entrustment will not terminate with the dissolution, bankruptcy or closure of a TIC, nor with its quitting from the entrustment, unless it is stipulated otherwise by laws or entrustment contract.

Article 7

The operations of a TIC shall be organized in accordance with laws, regulations and entrustment contract, and shall not harm the interests of the state and the general public or the legitimate interest of other persons.

Article 8

When managing and disposing of the entrusted property, a TIC shall be faithful to their duties and fulfill the obligation of being honest, credible, prudent and efficient.

Article 9

A TIC shall not be allowed to take deposits, issue bonds or borrow from abroad.

Article 10

The People's Bank of China is to supervise TICs and their operations according to laws, administrative regulations and these rules.

Chapter II Establishment, Alteration and Termination of TICs

Article 11

TICs shall be established in the form of limited liability companies or share-holding companies.

Article 12

A TIC shall get the approval of the People's Bank of China for its establishment and the "license for trust and investment institution" as well. No entities or individuals can engage in trust business without approval of the People's Bank of China, nor can any commercial institution use "Trust & Investment" in its name unless particularly permitted by laws and regulations.

Article 13

The establishment and operation of a TIC shall meet the following criteria:

1)

Articles of association that conform to the "Company law of the People's Republic of China" and regulations of the People's Bank of China.

2)

Eligible shareholders according to regulations of the People's Bank of China.

3)

Registered capital no less than the minimum requirements stipulated by these rules.

4)

Eligible senior managerial personnel and qualified trust business staff according to regulations of the People's Bank of China.

5)

Complete organizational structure, comprehensive rules of trust operation and sound risk-control systems.

6)

Business premise, security system and other business-related facilities as required.

7)

Other criteria set by the People's Bank of China.

The People's Bank of China can review the application for the establishment of a TIC according to the need of economic development and the market situation of trust business.

Article 14

The registered capital of a TIC shall be no less than RMB 300 million Yuan.

A TIC engaged in foreign exchange business shall have foreign currency of no less than USD 15 million in its registered capital.

The People's Bank of China can modify the minimum requirement of registered capital for the establishment of a TIC according to the development needs of TIC sector.

Article 15

A TIC shall obtain approval from the People's Bank of China in following matters:

1)

Change of name.

2)

Change of registered capital.

3)

Change of location.

4)

Change of organizational structure.

5)

Adjustment of business scope.

6)

Change of senior management.

7)

Change of major shareholders or shareholding structure. Shareholders of a listed TIC with their holdings of tradable shares less than 10% of total shares are not included.

8)

Modification of the Articles of Association.

9)

Merger or split-up.

10)

Other changes stipulated by the People's Bank of China.

Article 16

A TIC that applies for dissolution due to the merger, split-up or other reasons stipulated in its Articles of Association can dissolute after being approved by the People's Bank of China, and then be liquidated by a liquidation task force set up in accordance with relevant laws.

Article 17

When a TIC cannot pay its maturing debt due to illegal operations or poor management, and the public interests would be damaged or the financial system would be endangered unless it is closed, the People's Bank of China shall close it according to the " Regulations on Closure of Financial Institutions".

Article 18

A TIC that can't pay its maturing debt may apply for bankruptcy to the People's Court with the approval of the People's Bank of China.

Article 19

The approval procedure of TICs' establishment, alteration and termination shall follow the relevant regulations of the People's Bank of China.

Chapter III Business Scope

Article 20

A TIC can apply to engage in part or all of the following businesses both in local and foreign currencies:

1)

Entrusted funds management. The Client entrusts funds, which are his or her legitimate property, to the TIC to be managed, used and disposed of on agreed terms and objectives.

2)

Entrusted management of movables, real estate and other properties. The Client entrusts his or her property or property rights, including moveable property, real estate, land, copyright and intellectual property rights, to the TIC to be managed, used or disposed of on agreed terms and objectives.

3)

Entrusted management of investment funds permitted by relevant laws and administrative regulations. A TIC can engage in investment fund business as a sponsor of an investment fund or a fund management company.

4)

Restructuring and acquisition of enterprises' assets; intermediary businesses such as project financing, corporate financial management, financial consulting, etc.

5)

Entrusted underwriting of treasury bonds, financial institutions bonds and corporate bonds with approval of relevant departments of the State Council.

6)

Management, utilization and disposal of entrusted properties.

7)

Entrusted custody.

8)

Credit certification and investigation; business consulting.

9)

Providing guarantee for others backed by its own assets.

10)

Other businesses approved by the People's Bank of China.

Article 21

A TIC can accept entrustments with following public objectives according to relevant provisions of the" Trust Law of the People's Republic of China":

1)

Poverty aid.

2)

Disaster relief.

3)

Assistance to the disabled.

4)

Development of education, science, sports, culture and art.

5)

Development of medical care and public sanitation.

6)

Development of environmental protection, preservation of ecological environment.

7)

Development of other social courses that are in the interest of the society.

Article 22

A TIC can manage or use the entrusted property by means of leasing, selling, lending, investing or interbank lending according to the terms of entrustment contract.

Article 23

A TIC can design its businesses products according to objectives of the entrustment, types of entrusted property or different ways of management of entrusted property.

Article 24

A TIC's own capital in the account of owner's equity, which is permitted to be used according to relevant rules, can be deposited in banks or used in interbank lending, lease financing and investment. However, its outstanding balance of equity investment and fixed assets for its own use shall not exceed 80% of its net assets.

Article 25

After being approved by the People's Bank of China, a TIC can engage in interbank borrowing and lending.

Article 26

The business scope of a TIC shall be defined by its Articles of Association and approved by the People's Bank of China.

Chapter IV Rules of Business Operation

Article 27

An entrustment shall be created in a written form, including entrustment contracts, wills or other written documents required by relevant laws and administrative regulations.

Article 28

When an entrustment is created in the form of an entrustment contract, the entrustment contract shall contain the following contents:

1)

Objectives of the entrustment.

2)

Name and addresses of the client and the trustee.

3)

The beneficiary or the coverage of beneficiaries.

4)

Scope, type and condition of the entrusted property.

5)

Rights and obligations of involved parties of the entrustment.

6)

Revealing and undertaking of risks arising from the management of entrusted property.

7)

Management of the entrusted property and the trustee's authorized business scope.

8)

Calculation of benefits of the entrustment and the way in which the benefits to be transferred to the beneficiary.

9)

Calculation and payment of TIC's remuneration.

10)

Tax payments on the entrusted property and accounting of other costs.

11)

Maturity and termination of the entrustment.

12)

Ownership of the entrusted property when the entrustment terminates.

13)

Reporting of entrustment affairs.

14)

The responsibilities for defaults of the involved parties and resolution of disputes.

15)

Selection and appointment of new trustee.

16)

Other items that both the client and the trustee deem necessary to be included.

Article 29

A TIC shall follow the principle of maximizing beneficiary's benefit when dealing with entrustment affairs, and manage the entrusted property prudently.

Article 30

A TIC shall not take deposits in the name of entrusted funds management or other businesses.

Article 31

A TIC shall refrain from following behaviors when doing trust business:

1)

Seek illegitimate gains by taking advantage of its trustee status.

2)

Misuse entrusted property for non-entrusted purposes.

3)

Promise no losses of entrusted property or guarantee minimum returns.

4)

Use entrusted property to provide guarantees.

5)

Invest the entrusted funds in securities issued by itself or related persons.

6)

Lend the entrusted fund to itself or other related persons.

7)

Trade entrusted properties between different trust accounts.

8)

Trade between its' own assets and the entrusted property.

9)

Other behaviors prohibited by laws, administrative regulations and the People's Bank of China.

Transactions based on the terms of entrustment contract and conducted at a fair market price by a TIC are exempted from items (4)-(8) in the above article.

Article 32

The related persons mentioned above refer to:

1)

Shareholders of the TIC holding shares of more than 10% of the total.

2)

Enterprises invested and controlled by the TIC.

3)

Directors, supervisors, managers and trust business staff of the TIC and their relatives.

4)

Companies, enterprises and other commercial entities with the persons mentioned above holding more than 5% of total shares or holding senior management positions.

Article 33

A TIC shall conduct the entrusted business by itself unless stipulated otherwise by entrustment contract or justified by unavoidable incidents. In the case of the latter, the TIC can entrust others to do the business on its behalf.

Article 34

Confidentiality shall be kept regarding information of the client, the beneficiary and the situation of entrustment affairs, unless stipulated otherwise by laws, administrative regulations or the entrustment contract.

Article 35

A TIC shall separate its own assets from entrusted properties and manage entrusted properties of different clients separately in different accounts.

Article 36

A TIC shall maintain complete records of entrustment affairs, and report to clients and beneficiaries at least every year situation of the entrusted properties, management, utilization and disposal of entrusted properties and income and expenses.

Clients and beneficiaries are entitled to inquire about the management, utilization and disposal of entrusted properties and income and expenses at any time, and request explanations from TICs.

Article 37

A TIC receives remuneration for its trust business in the way of commissions and service charges as agreed.

A TIC's remuneration is determined through negotiation with its clients, unless stipulated otherwise by the People's Bank of China.

Article 38

Losses of the entrusted property due to a TIC' violation of the entrustment objectives and managerial responsibility or improper operations shall be compensated or restored to the original state by the TIC. The TIC cannot ask for any remuneration before the compensation or the restoration is made.

Article 39

Any cost or debt of a TIC arising from its dealing with entrustment affairs shall be paid with the entrusted property, while the client shall be clearly informed with such a provision or the provision shall be included in the entrustment contract. If a TIC makes advance payment with its own assets, it can enjoy the preferential reimbursement with the entrusted property. Any loss or debt resulted from a TIC's managerial failure or improper operations shall be paid by the TIC's own assets.

Article 40

If a TIC disposes of the entrusted property against objectives of the entrustment or makes serious mistakes in its management, utilization and disposal of the entrusted property, the client shall be entitled to discharge the TIC in accordance to the entrustment contract or apply to the People's Court for discharging the TIC.

Article 41

When a TIC ceases operation; its managerial responsibility for the entrustment business also ceases. The liquidation task force shall keep the entrusted property in careful custody, prepare report on entrustment affairs and transfer the entrusted property to the new trustee, unless being stipulated otherwise by the entrustment contract.

Article 42

When a TIC's responsibility as a trustee is brought to an end according to laws and regulations, a new TIC shall be selected according to the terms of entrustment contract; if there is no such stipulation in the entrustment contract, a replacement shall be selected by the client; if the client cannot make the choice, it shall be selected by the beneficiary; if the beneficiary has no civil capacity or only limited civil capacity, the selection will be made by its guardian as stated by law.

Article 43

The entrustment terminates under any of the following circumstances in a TIC's trust business:

1)

Occurrence of specific incidents that call for a termination as defined in the entrustment contract.

2)

Continuation of the entrustment is against objectives of the entrustment.

3)

The objectives of entrustment have been achieved, or are not possible to achieve.

4)

Agreed by all relevant parties of the entrustment.

5)

The entrustment matures.

6)

The entrustment is withdrawn.

7)

The entrustment is canceled.

8)

All the beneficiaries give up their rights to benefit from the entrustment.

Article 44

When the entrustment ends, a TIC shall prepare liquidation reports on their entrustment affairs. If the beneficiary or the owner of the entrusted property has no objection, the TIC shall be released from responsibilities for affairs outlined in the liquidation report, unless the TIC has been found in irregularities.

Article 45

When accepting funds entrusted to them to determine on behalf of the clients how to manage these funds, a TIC shall be subject to the following restrictions:

1)

Maturity of the entrustment shall be no less than 1 year.

2)

Every single entrusted fund shall be no less than RMB 50,000 Yuan.

Article 46

The People's Bank of China can formulate rules on the management of entrusted funds that are entrusted to a TIC to determine their management according to the need of financial risks prevention.

Article 47

When engaged in foreign exchange trust business, a TIC shall abide by relevant regulations on foreign exchange controls and be supervised and examined by the foreign exchange control authorities.

Article 48

The total amount of the guarantees provided by a TIC or its outstanding borrowing shall not exceed its registered capital.

Article 49

A TIC shall conform to relevant regulations of the People's Bank of China when engaging in interbank lending with entrusted funds or its own funds.

Article 50

A TIC shall retain 5% of its after-tax profit each year as a provision to compensate losses of the entrusted property, and it can stop this provisioning when the cumulative balance reaches 20% of its registered capital.

Compensation provision of a TIC shall only be deposited in domestic commercial banks with sound operation and strong performance or invested in treasury bonds.

Chapter V Supervision and Self-regulation

Article 51

A TIC shall formulate its own rules on trust business and other businesses, establish and improve its own managerial system and internal controls, and report to the People's Bank of China for record-keeping.

A TIC shall establish an internal audit department to audit and supervise its operation. The internal audit department of a TIC shall submit internal auditing reports to the board of directors at least every six months, and send copies of the reports to the People's Bank of China at the same time.

Article 52

A TIC shall organize its account books in accordance with laws, conduct separate accounting on trust and non-trust businesses, and maintain separate accounts for each of its trust businesses. Its financial and accounting standards shall be brought to be in line with relevant rules of the Ministry of Finance.

Article 53

A TIC shall establish and improve its own financial and accounting system according to relevant regulations, honestly keep records and fully reflect its operation and financial position. Its annual financial statement shall be audited by certified accountants who have the required qualifications.

A TIC shall send required information to the People's Bank of China and other relevant authorities according to rules and regulations, including business reports, accounting reports on trust and non-trust businesses and catalog of trust accounts, etc.

Article 54

The trust business department of a TIC shall operate independently from other departments. Staff of this department shall not hold concurrent posts in other departments and specific information of its business shall not be shared with other departments.

Article 55

The People's Bank of China can examine the operation of a TIC regularly or irregularly. The People's Bank of China can order a TIC to invite qualified intermediaries to audit its operation and financial position when it deems necessary.

A TIC shall provide accounting reports and information of its operation and financial position according to the requirements of the People's Bank of China and honestly indicate situation of relevant businesses.

Article 56

A qualification review system shall be applied to the senior management of a TIC by the People's Bank of China. No senior manager can take his or her office without his or her qualification being reviewed by the People's Bank of China, or if he or she fails to pass that review.

When a senior manager leaves his or her post, he or she shall be subject to ex-post auditing and the outcome shall be recorded with the People's Bank of China. When a TIC changes its legal representative, the old representative shall not leave the post until qualification of the new representative has been certified by the People's Bank of China.

Article 57

The People's Bank of China shall conduct trust business qualification examination to the trust business personnel of a TIC. Those who pass the examination will be granted by the People's Bank of China certificate of qualified trust business personnel; those who fail the examination shall not be allowed to engage in trust business. The particulars of this examination system are to be specifically formulated by the People's Bank of China.

Article 58

If any of the senior managers or business staff violates laws, regulations or relevant rules of the People's Bank of China, the People's Bank of China has the right to revoke his qualification in trust business.

Article 59

The People's Bank of China can question the senior management of a TIC on significant problems discovered in its supervision of the TIC, and require it to take corrective measures within a certain period of time.

Article 60

When a TIC's operation is found in trouble as a result of chaotic management, the People's Bank of China can require it to take measures to consolidate or restructure, and suggest removal of senior management. The People's Bank of China can also take it over if it deems necessary.

Article 61

TICs can jointly set up a trade association to promote self-regulation.

Any activities of such a trade association are to be guided and supervised by the People's Bank of China.

Chapter VII Penalty Provisions

Article 62

Establishing a TIC or engaging in trust business without the approval of the People's Bank of China shall be banned and punished according to the" Rules On Banning Illegal Financial Institution and Illegal Financial Business".

Article 63

If the People's Bank of China found any concealment or misreporting of information in a TIC's application for its establishment, alteration and termination, it could command the TIC to make correction or withdraw the approval already granted.

Article 64

The People's Bank of China shall require a TIC that has violated Article 30 in handling entrusted funds business to return all the deposits it has absorbed, and suspend part or all of its business; senior management accountable for such a violation and other staff with immediate responsibility shall be disciplined and their qualifications for senior management or trust business staff shall also be revoked by the People's Bank of China. When committing a crime, they shall be subject to criminal prosecution.

Article 65

A TIC that has violated Article 31 shall be punished according to Article 28 of the "Rules on Punishment of Financial Irregularities".

Article 66

A TIC that has violated other articles of these rules shall be punished according to the "Rules on Punishment of Financial Irregularities" and relevant rules by the People's Bank of China.

Article 67

If a TIC does not accept punishments issued by the People's Bank of China, it shall be allowed to request an administrative review or file an administrative suit with the People's Court.

Chapter VIII Supplementary Provisions

Article 68

The People's Bank of China is responsible for the interpretation of these rules.

Article 69

These rules shall enter into force as of the date of promulgation, and the " Regulation on Trust and Investment Companies" published on January 10, 2002 by the People's Bank of China is abolished at the same time.