Laws of the People's Republic of China

Circular of China Securities Regulatory Commission on the Relevant Issues Concerning the implementation of the Measures for the Administration on Securities Investment within the Territory of China by Qualified Foreign Institutional Investors

Zheng Jian Ji Jin Zi [2006] No.176

All foreign investors, custodian banks, securities companies, Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Securities Depository and Clearing Corporation Limited:

With a view to further improving the pilot wok on qualified foreign institutional investors (hereinafter referred to as QFII ), we hereby make the following notice on the relevant issues concerning the implementation of the Measures for the Administration on Securities Investment within the territory of China by Qualified Foreign Institutional Investors (hereinafter referred to as the Administration Measures):

1.

When applying for the qualification as a QFII, the applicant shall meet the following conditions on assets scale and other conditions:

(1)

As regards a fund management institution, it shall have engaged in assets management business for 5 or more years, and the securities assets managed in the latest accounting year shall not be less than USD 5 billion;

(2)

As regards an insurance company, it shall have been established for 5 or more years, and the securities assets held in the latest accounting year shall not be less than USD 5 billion;

(3)

As regards a securities company, it shall have engaged in securities business for 30 or more years, the paid-in capital shall be not less than USD 1 billion, and the securities assets managed in the latest accounting year shall not be less than USD 10 billion;

(4)

As regards a commercial bank, its total assets shall rank in top 100 worldwide in the latest accounting year, and the securities assets it managed shall not be less than USD 10 billion;

(5)

As regards other institutional investors (pension funds, charity foundations, endowment funds, trust companies, government investment management companies, etc.), they shall be established for 5 or more years, and the securities assets managed or held in the latest accounting year shall not be less than USD 5 billion;

2.

When applying for the qualification as a QFII, the applicant shall submit the following application documents to the China Securities Regulatory Commission (hereinafter referred to as CSRC) (one original copy and one duplicate):

(1)

The application form (appendix 1);

(2)

The form of basic information of major principals (appendix 2);

(3)

The investment plan;

(4)

The explanation on the fund sources;

(5)

The explanation on whether the applicant has ever been punished severely by supervisory organs within the latest 3 years;

(6)

The business license of the applicant (photocopy) issued by the country or region where it is located;

(7)

The financial operation license of the applicant (photocopy) issued by the supervisory organ of the country or region where the it is located;

(8)

The Articles of association of the company (photocopy);

(9)

The draft custody agreement concluded with its potential trustee;

(10)

The audited financial statements of the recent 3 years; and

(11)

Other documents as required by the CSRC.

Among the documents as prescribed in the preceding paragraph, if a document is signed by a person authorized by the legal representative (the legal representative shall refer to a natural person that may, upon the authorization of the board of directors of the applicant, or in light of the articles of association of the applicant, or according to the laws and regulations of the country or region where the applicant is located, handle the relevant issues concerning the administration of securities investment within the territory of China by QFII on behalf of the applicant, such as the chairman of the board or CEO) of the applicant, a power of attorney issued by the legal representative is required.

The aforesaid power of attorney and the documents as prescribed in items (6), (7) and (8) of the preceding first paragraph shall obtain the notarial deed issued by an notarization institution or a lawyer legally approved by the country or region where it is located, or shall be subject to the authentication of the Chinese embassy or consulate to that country. If any of the documents as prescribed in items (3), (4), (5) of the first paragraph is written in a foreign language, a corresponding Chinese version shall be attached thereto.

A QFII applicant shall, within 5 workdays as of the opening of the special RMB account, submit the official custody agreement to the CSRC.

3.

The Securities Investment License for a QFII shall be valid for a long time, save and except that it is otherwise prescribed in the relevant laws and regulations or by the CSRC or that the CSRC have cancelled the Securities Investment License according to law.

4.

When applying for the qualification as a QFII trustee, the applicant shall file the following documents with the CSRC (one original copy and one photocopy):

(1)

The application form ( Appendix 3)

(2)

The application form for the qualification as a trustee (it shall be affixed with an official seal or the signature of the legal representative);

(3)

The official reply of the CSRC on approving the applicant's engagement in the entrusted business of securities investment within the territory of China by a QFII (photocopy);

(4)

The duplicate of the financial business license (Photocopy) and the duplicate of the business license (Photocopy);

(5)

The certification documents of the paid-in capital;

(6)

The basic background information on domestic trust departments (including personnel and safety guarantee measures, etc.);

(7)

The relevant administrative rules on trusteeship business (mainly including the administrative measures on trusteeship business, internal risk control system, post-related responsibility and operational procedure, norms of acts of employees, accounting methods and information control system, etc.);

(8)

The explanation on the possession of a highly efficient, rapid, safe and reliable technical system and relevant proofs; and

(9)

Other documents as required by the CSRC and the State Administration of Foreign Exchange in light of the principle of prudent supervision.

5.

If under any of the following circumstances, the trustee of a QFII must be replaced:

(1)

The QFII has sufficient reasons to believe that the replacement of a trustee is more helpful to its interests;

(2)

The CSRC and the State Administration of Foreign Exchange determine, pursuant to the principle of prudent supervision, that the trustee is unable to fulfill the duties of a trustee any more.

Both the new trustee and the original trustee shall, within 3 workdays after the quit of the original trustee, report the relevant information to the CSRC and State Administration of Foreign Exchange for archival filing.

6.

A QFII shall entrust the trustee to send an application to China Securities Depository and Clearing Corporation Limited (hereinafter referred to as China Clearing Corporation) for opening several securities accounts, which shall be in one-to-one correspondence with the special RMB accounts approved by the State Administration of Foreign Exchange.

A QFII shall open and use the securities accounts according to the business rules of China Clearing Company and be responsible for the management of the securities accounts it opened.

7.

A QFII shall apply for the opening of a securities account in its own name. As regards a QFII providing asset management services to customers, a nominal holder account shall be opened. And the QFII shall report the situation of the investments by the owners of securities rights and interests under the nominal holder account according to the relevant requirements (Appendix 4).

8.

A QFII may, when opening securities accounts for such long-term funds as public offering funds, insurance capital, pension funds, charity funds ,endowment funds and governmental investment funds, set the account names as "QFII + fund (or insurance capital, etc.)". The assets under the account belong to the "fund (insurance capital, etc.)", and shall be independent of the QFII and the trustee.

9.

A QFII may, within the approved investment amount, invest in the following RMB financial instruments:

(1)

Stocks listed and traded in stock exchanges;

(2)

Bonds listed and traded in stock exchanges;

(3)

Securities investment funds;

(4)

Warrants listed and traded in stock exchanges;

(5)

Other financial instruments as permitted by the CSRC.

A QFII may participate in the issuance of new shares, issuance of convertible bonds, additional insurance of shares and purchase of rationed shares.

10.

The securities investment within the territory of China by foreign investors shall abide by the following limits on the proportion of shares:

(1)

As for the single foreign investor that holds the stock of one listed company through QFII, the proportion of shares shall not exceed 10% of the total amount of shares of the company;

(2)

The total of the proportions of A shares held by all foreign investors in a single listed company shall not exceed 20% of the total amount of shares of the company;

As for the foreign investors that make strategic investment in listed companies according to the Measures for the Administration on Strategic Investment in Listed Companies by Foreign Investors, the shares held by them through strategic investment shall not be subject to the above-mentioned limits on the proportion of shares.

11.

If the securities investment within the territory of China by a foreign investor meets the requirements of information disclosure, as an obligor of information disclosure, the foreign investor shall submit the content of the disclosed information to stock exchanges through QFII, which shall be in duty to ensure that the foreign investor under its name strictly complies with the relevant provisions on information disclosure.

12.

A QFII may exercise the shareholder's rights on its own or through entrusting trustees, securities companies within the territory of China, secretaries of the boards of directors of listed companies, independent directors of listed companies or foreign investors under its name.

13.

When exercising the shareholder's rights, a QFII shall bring forward the following evidential documents to the listed company:

(1)

The original copy or photocopy of the Securities Investment License for the QFII;

(2)

The original copy or photocopy of the securities account card;

(3)

The identity certificate of the exerciser of certain specific right;

(4)

If the QFII empowers other people to exercise the shareholder's rights, besides the above-mentioned documents, a power of attorney signed by the authorized representative shall also be provided (If the QFII empowers foreign investors under its name to exercise the shareholder's rights, a corresponding explanation on the proportion of shares signed by the authorized representative of the QFII shall also be provided).

14.

As a nominal holder, a QFII may, in light of the shares held by foreign investors under its name, make partial or divided vote.

15.

Each QFII may entrust 3 securities companies within the territory of China to undertake securities transactions respectively in Shanghai Stock Exchange or Shenzhen Stock Exchange.

16.

The present Circular shall enter into force as of September 1, 2006.

Appendix:

1.

Application form for Qualified Foreign Institutional Investors

2.

The form of basic information of major principals

3.

Application form for Trustee of Qualified Foreign Institutional Investors

4.

Form of the Quarter Account of a Nominal Holder (Content and Format)

China Securities Regulatory Commission

August 24, 2006