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CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL ON BANNING UNAUTHORIZED GOLD MARKETS AND STRENGTHENING ADMINISTRATION OF GOLD PRODUCTS

    In order to strengthen the administration of gold products and ensure
fulfillment of the demands of national economic construction for gold, the
``Regulations of the People's Republic of China on the Administration of Gold
and Silver'' (hereinafter referred to as ``the Regulations'') stipulate that
the state practices the policy of the unified administration, unified purchase
and distribution of gold. All gold receipts and expenditures of the government
agencies, the army units, public organizations, schools and state-owned
enterprises and institutions, as well as collective economic organizations in
both urban and rural areas within the territory of the country must be brought
into the national plan for gold revenue and expenditures; and all gold shall
be purchased and distributed by the People's Bank of China in a unified
manner. However, for a period of time, a number of unauthorized gold markets
have emerged one after the other in various localities, and various
enterprises and individuals have, in violation of the provisions of the
Regulations, purchased and sold gold without authorization and unlawfully
produced, wholesaled and retailed gold and gold products, thereby creating
disorder in the administration of gold and silver, seriously interfering with
the state's normal purchase and distribution process of gold, and eventually
resulting in a sharp decline in the volume of gold purchased by the state.
The situation concerning the purchase of gold has improved to some extent
following state adjustments to the purchase price of gold in September 1993.
However, unauthorized gold markets in various localities have not previously
been banned entirely and the problem of illegal exchanges remains serious.
Therefore, this Circular is hereby published with the approval of the State
Council in order to thoroughly ban the unauthorized gold markets, return order
to the production and exchange of gold, and strengthen administration of gold
products.

    1. Local people's governments at various levels and relevant departments
and organizations shall continue to strictly implement the provisions of the
Regulations, and adopt resolute measures to prohibit illegal exchanges of
gold, and prevent smuggling and trafficking in the products. Without the
explicit approval of the People's Bank of China, no locality, department,
organization or individual may purchase gold on their own authority, or engage
in the production, wholesale, processing or retail of gold. The governments of
provinces, autonomous regions and municipalities directly under the Central
Government shall immediately organize banks, the administrative departments
of industry and commerce, public security, customs, gold industry and
administrative departments of gold ornaments production to adopt effective
measures to tackle the problems in a comprehensive way. By strengthening
inspections and dealing severely with cases involving illegal purchases and
sales of gold products by gold producing enterprises, and by strengthening
supervision and investigation in strict accordance with laws and regulations,
unauthorized markets for the exchange of gold, both existing markets and those
being established in various localities shall be resolutely banned no later
than the end of June 1994. With regard to areas where illegal gold exchange
markets still exist by July 1 due to the lack of firm attitude and effective
implementation, relevant persons and the principal responsible comrades of the
local government shall be investigated for responsibilities according to law.

    2. The Ministry of Metallurgical Industry and departments responsible for
administration of the gold industry shall strengthen administration of the
production and sale of gold. The enterprises engaged in the production of gold
must sell their entire gold output to the People's Bank, and shall not engage
in illegal exchanges, or retain any portion of the production for private use,
and shall not have the gold in portions sold by individuals for tax evasion
and default on obligations to repay loans. Violators shall be subject to
punishment according to the Regulations, and the principal responsible
comrades of the local department responsible for administration of the gold
industry and of the production enterprise shall be investigated for
responsibilities according to law, and violators of law shall be subject to
severe punishment according to law. In accordance with the provisions, the
gold production enterprises shall report to departments in charge on gold
production and sales. In cases when the sales volume of an enterprise is
obviously below the output, in accordance with the severity of the case,
special loans for gold and silver, as well as circulating funds granted to the
enterprise may be halted, and the favorable policy for either a reduction or
exemption of tax shall be withdrawn. At the beginning of each year, the
Ministry of Metallurgical Industry and the China National Nonferrous Metals
Industrial Corporation shall submit a report to the State Council indicating
the previous year's production and sales volumes of the enterprises attached
to their respective systems.

    3. In an effort to conscientiously implement the spirit of the "Circular
of the State Council Regarding Implementation of Profective Exploitation of
Gold Mines", all gold mining operations by individuals or unlawful mining
without a required certificate shall be strictly prohibited, and in addition,
smelting, processing gold and selling gold nuggets by individuals are strictly
prohibited. In cases when relevant departments confirm that mechanized mining
of fragmentary gold deposits in remote boarder areas is impracticable, local
people's governments may, in accordance with approval procedures, organize
manpower to engage in collective mining, with total gold output sold to the
People's Bank.

    4. Production and management units of gold ornaments planning to bring
substantial quantities of gold to another province must obtain the approval
of the local provincial branch of the People's Bank of China in the respective
province, autonomous region or municipality directly under the Central
Government, and air, railway and transportation departments will release the
gold upon examining approval documents issued by the People's Bank; and in
case of substancial quantities of gold ornaments, air, railway and
transportation departments shall release the shipments of gold ornaments upon
examining a copy of the management certificates of fixed enterprises, and a
letter of introduction issued by the relevant unit. Relevant departments shall
deal with those who fail to present valid certificates by applying mutatis
mutandis relevant provisions concerning the forfeit of contraband.

    The state administers the production, processing, wholesaling, and
retailing of the gold ornaments through fixed units. Said fixed units shall
be managed strictly in accordance with the scope of business approved. Gold
materials required for production shall be applied for in line with the system
and shall be distributed according to localities, and shall be purchased by
the enterprises from the People's Bank, with all illegal exchanges strictly
prohibited. Gold ornaments production and management units established without
the approval of the People's Bank shall be immediately disbanded.

    5. Departments in charge of public security, procuratorate, industry and
commerce, and customs shall strengthen the investigation and adjudication of
cases related to illegal purchases, fraudulent buying and selling and the
smuggling of gold, and in accordance with the spirit of the "Circular of the
Supreme People's Court, Supreme People's Procuratorate, Ministry of Public
Security and the Ministry of Justice Regarding the Institution of a Severe
Crack Down on Criminal Activities Related to Sales and Smuggling of Gold",
shall crack down with severity on criminal activities related to sales and
smuggling of gold. Cases involving an accumulated volume of 50 grams of seized
gold may be regarded as a major case. All gold recovered shall be sold to
local people's banks. The local people's governments shall ensure the
allocation of funds necessary to cover expenses law-enforcing departments
accrue for adjudicating cases, and units and individuals determined to have
made outstanding contributions in the course of handling cases shall be
rewarded.

    6. Duty-free stores throughout the country which have been approved for
concurrent management of retailing gold and silver ornaments shall limit their
sales to persons holding foreign passports, certificates for overseas Chinese
visiting their hometowns and resident's cards issued to staff members working
abroad and with the payment made in foreign currency for all purchases. The
management of gold and silver in bonded areas shall still be administered by
functional departments in accordance with existing administrative procedures
and regulations. Gold and silver products manufactured and managed by related
processing enterprises and managing units of gold and silver ornaments in
bonded areas shall in principle be exported, and shall not be sold to
non-bonded areas, (including wholesale and retail). Under special
circumstances where gold and silver products are needed to sell to non-bonded
areas, that shall be regarded as imports and, according to relevant provisions
of the state, import formalities shall be completed and duties and taxes shall
be levied accordingly.

    7. Dealings in gold futures are strictly prohibited and the establishment
of markets for gold futures in various forms is strictly prohibited.

    8. People's banks at various levels shall conscientiously strengthen
activities related to gold purchases and shall make timely adjustments in the
gold purchasing and selling prices in accordance with fluctuations in gold
prices and related circumstances in the international markets. The banks shall
work out elaborate purchase plans, reform purchase methods, raise their
business levels and provide convenience for enterprises to sell gold.

    Various regions and relevant departments shall maintain an overall view of
the situation and conscientiously carry out the requirements in this Circular.
Relevant departments of the State Council shall organize personnel to visit
various principal gold producing provinces to undertake investigations and
research, assist in resolving lingering problems, and provide the State
Council with a timely summary of their findings.