Laws of the People's Republic of China

State Administration of Foreign Exchange

Circular on the Management and Operation of Foreign Exchange of QFII of Comprehensive Department of State Administration of Foreign Exchange

Zong Hui Fa [2003] No.124

September 9, 2003

Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, China Merchants Bank, Shanghai Branch of National City Bank of New York, Shanghai Branch of the HSBC and Shanghai Banking Corporation Limited, and Shanghai Branch of Standard Chartered Bank:

On November 28, 2002, the Interim Provisions on the Administration of Foreign Exchange in Domestic Securities Investments of Qualified Foreign Institutional Investors was issued and put into effect by the State Administration of Foreign Exchange (hereinafter refer to as the SAFE). And since then, the SAFE has received a lot of inquiries from some institutional investors who are concerned about the administration of foreign exchange of the domestic securities investment by qualified foreign institutional investors (hereinafter refer to as the QFII). We hereby give the following notice concerning the relevant issues for the convenience of the implementation of the above provisions:

I.

The domestic trustee of the QFII (hereinafter refer to as the trustee) may open a special RMB account for each QFII based on the following documents:

1.

The photocopy of the official reply of the SAFE on approving the amount of investment by the QFII;

2.

The official reply of the SAFE on approving the QFII to open the special RMB account;

3.

Other documents as required by the trustee.

II.

The trustee is not allowed to open a sub-account of the special RMB account for the QFII; But on the request of the QFII, the trustee may establish a detailed ledger for the capital collection and payment of his special RMB account, which can be used to record the specifics of the use of the money.

No other accounts except the special RMB account may be opened in the bank of the trustee for a QFII to carrying out its businesses.

III.

The deposit interest rates of the special RMB account shall comply with the standard of current deposit interest rates of unit announced by the People's Bank of China.

IV.

Each kind of expenses of the QFII occurring when the investment businesses are carried out in China, such as the trust fees, administrative cost, auditing fees, and so on, shall be paid from the special RMB account; and the expenses of the QFII that occur outside China are not permitted to be paid from the special RMB account.

V.

If the amount of investment of the QFII is between 50-100 million dollars (including 100 million dollars), the initial principals to be paid shall be no less than 20%(including 20%) of the amount of investment; If the amount of investment is between 100-200 million (including 200 million dollars), the initial principals to be paid shall be no less than 15% (including 15%) of the amount of investment; If the amount of investment is between 200-400million dollars (including 400 million), the initial principals to be paid shall be no less than 10% (including 10%) of the amount of investment; And if the amount of investment is between 400-800 million dollars (including 800 million dollars), the initial principals to be paid shall be no less than 5% (including 5%) of the amount of investment.

VI.

In the case that the principals paid by the QFII are not more than 50 million dollars, after the settlement of the exchange, the inward remittance of the principals (in the form of deposits) may only be left in the trustee's care, and no securities investments are permitted. If within the period of validity, the amount of investment paid by the QFII fails to reach 50 million dollars, the inward remittance of principals shall be remitted by installment after the expiration of the closing period as prescribed in the Interim Provisions on the Administration of Foreign Exchange in Domestic Securities Investments of Qualified Foreign Institutional Investors.

VII.

The QFII may remit the profits on a yearly basis, and the profits permitted to remit by the QFII are those that have been realized and cumulated year by year.

VIII.

In the case that a QFII transfers its amount of investment, inward remittance of principals from abroad by the transferee may not exceed the authorized amount of investment, and the payment of the relevant capitals must be done within China. After the transferred capitals were received by the transferor, the capitals of the transferor shall be remitted outside China within 5 working days in virtue of the documents of approval for the transfer issued by the State Administration of Foreign Exchange.

IX.

On each application a foreign fund management company may choose only one of the two types of funds, i.e. the close funds and the open funds. In case that a foreign fund management company has applied in the type of close funds (open funds), which has been approved, and if the company applies for the amount of investment in the type of open funds (close funds) for the second time, it shall be regarded as a separate application, rather than an increase of the amount of investment. The fund management company is required to apply for a second QFII foreign exchange registration certificate and a second special RMB account. It is required that the two kinds of funds be accounted independently and be managed through separate accounts.

X.

In case that a QFII changes a trustee, the former trustee shall, while transferring all the relevant records to the new trustee, keep one photocopy of all the relevant records on file for future reference, the term for keeping the records shall be 15 years.

XI.

The trustee shall submit the relevant QFII report forms to the State Administration of Foreign Exchange in time as prescribed. The format of the QFII report forms to be submitted to the State Administration of Foreign Exchange (see Attachment) can be found on the website of the State Administration of Foreign Exchange (www. safe.gov. cn).

The trustee shall send the QFII report forms through fax and email respectively to the SAFE.

Fax: (010) 68402349

Email Address: security@mail.safe.gov.cn

XII.

The QFII report forms submitted to SAFE by a trustee shall be prepared according to such accounting rules as the accrual basis.

XIII.

Any problems that the trustee may come upon during the handling of the QFII trusteeship business should be fed back to the Capital Items Administration Department of the SAFE in time.For details,

Please contact: Zhou Yongkun

Tel: (010) 68402347

Annex:

1. Monthly Report Forms of the Qualified Foreign Institutional Investors on Domestic Securities Investments (I), (II) (Omitted)

2. Annual Financial Statements of the Qualified Foreign Institutional Investors on Domestic Securities Investments (I), (II) (Omitted)

3. List of the QFII Capital Remitted Inward and Outward (Omitted)