Laws of the People's Republic of China

The State Administration of Foreign Exchange

Circular on the Relevant Issues Concerning the Refund of the Security Deposit for Remitted-Back Overseas Investment Profits

HuiFa [2003] No.81

July 8, 2003

The branches and the departments of foreign exchange administration (hereinafter referred to as departments) of the State Administration of Foreign Exchange (SAFE) in the provinces, autonomous regions, and municipalities directly under the Central Government, and the branches in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo:

In order to carry out the development strategy of "going out", and to implement the relevant spirits of the Decision of the State Council on Repealing the First Batch of Administrative Examination and Approval Items (GuiFa No.24 [2002]), SAFE has abolished the system of security deposit for remitted back overseas investment profits (hereinafter referred to as security deposit), and has decided to refund to the investing subjects the security deposit already collected. In order to ensure the smooth progress of this work, the following circular is hereby made concerning the relevant issues:

1.

The branches and departments shall pay high attention to and earnestly take care of the work of refund of security deposit. In order to ensure the smooth progress of the work, the branches and departments shall form work groups of security deposit refund, which shall be led by the directors or deputy directors in charge, and the section of capital account check shall have the participation of at least two cadres at the division level and two handling persons.

2.

During the period between the day of issuance of the present Circular to March 31, 2004, the branches and departments may process the formalities for refund of security deposit to the investing subjects in a concentrated way. Where an investing subject fails to go through the said formalities within the said period, that subject shall be regarded as automatically waiving the relevant rights and interests it has in the security deposit. The branches and departments shall, as a general principle, notify the investing subjects one by one that surrendered the security deposit, and shall urge them to go through the refund formalities as soon as possible.

3.

An investing subject shall submit the following materials when applying for refund of security deposit with the local branch or department:

(1)

The investing subject's business license which has passed the annual industrial and commercial examination (original and duplicate), the original will be returned to the investing subject after the examination, and the duplication shall be kept on file.

If the original investing subject is altered, then the new investing subject applying for refund of security deposit shall submit, in addition to the original and duplicate of its business license passing the annual industrial and commercial examination, the relevant documents evidencing its beneficial right to the security deposit. The relevant documents refer to: in case of alteration of the name of the original investing subject, the new investing subject shall submit the document of approval of the relevant authority for the name alteration; in case of merger of the original investing subject and other entities, the security deposit shall be refunded to the new investing subject formed after the merger, however, the document of approval of the relevant authority for the merger and the merger agreement shall be submitted, and the merger agreement shall expressly stipulate that the new investing subject will continue enjoying the relevant rights and interests in the overseas investment; in case of splitting of the original investing subject into several new entities, the security deposit shall be refunded only to the new investing subject(s) that will enjoy the relevant rights and interests in the overseas investment after the splitting, however, the document of approval of the relevant authority for the splitting and the splitting agreement shall be submitted, and the splitting agreement shall expressly stipulate that the new investing subject(s) will continue enjoying the relevant rights and interests in the overseas investment; in case of bankruptcy, dissolution, and liquidation of the investing subject, the security deposit already surrendered to the foreign exchange bureau will no longer be returned.

(2)

Deposit proof or remittance proof of the surrendered security deposit (original and duplicate), the original will be returned to the investing subject, and the duplicate will be put on file.

(3)

Letter of introduction issued by the investing subject to its handling persons.

(4)

Opening bank, account name, and account number of the account designated by the investing subject, among which, the account name shall be strictly consistent with the name of the investing subject.

4.

The principal of the security deposit shall be returned to the investing subject in full, and the interest on the security deposit occurring during the period of surrender shall be returned to the investing subject according to the following standards:

(1)

Where a general account is opened in the name of the foreign exchange bureau, and separate subsidiary accounts are opened for the investing subjects hereunder (hereinafter referred to as an enterprise subsidiary account), or security deposit accounts are opened directly in the name of the investing subjects (hereinafter referred to as enterprise accounts), the capital (principal and interest) in the enterprise subsidiary accounts and the enterprise accounts shall all be refunded to the investing subjects, and those accounts shall be written off.

(2)

Where a security deposit account in opened in the name of the foreign exchange bureau (hereinafter referred as bureau account), the interest on the security deposit shall be calculated at the following fixed rates in a uniform way and be refunded to the investing subjects, that is: security deposit in RMB: annual rate of 0.72%; security deposit in US dollar: annual rate of 0.1250%; security deposit in Euro, annual rate of 0.2000%; security deposit in Yen: annual rate of 0.0001%; security deposit in HK dollar: annual rate of 0.1250%.

5.

The branches and departments shall carefully examine the relevant materials in light of their own administrative accounts of security deposit. Where the identity of an investing subject is inerrable and the security deposit surrendered by that subject are not refunded indeed, the handling person of the work group of security deposit refund shall write down the handling opinions, and the application shall, after being rechecked by the division director, submitted to the leader of the branch or department for examination and approval. Instructions for payment may be issued to the bank only upon approval of the leader of the branch or department. Double signatures shall be applied both in the handling and recheck.

6.

The branches and departments shall keep intact the business archives for security deposit refund. And after the end of the refund work, the branches and departments shall submit work reports to SAFE, summing up and reporting the implementation of the work.

7.

After the end of the refund work, the branches and departments shall, prior to April 30, 2004, surrender the residual principal and interest of the security deposit to SAFE for unified handling.

Remittance instruction for security deposit in RMB: Account: State Administration of Foreign Exchanges. Opening Bank: Beijing City Commercial Bank Fu Yu Branch. Account Number: 03731001201110156£­92.

Remittance instruction for security deposit in foreign currencies: Account: State Administration of Foreign Exchanges. Opening Bank: Shenzhen Development Bank Beijing An Hua Branch. Account Number: 11000253308402.

All the money orders shall be indicated with "balance after clearing of the security deposit for remitted back profits by ¡Á¡Á branch (department)".

8.

In case of any problem encountered during the execution of the present Circular, please contact with the Department of Capital Account Administration of SAFE. Contact persons: Zhao Jun, Ma Shaobo, Feng Yanqiu; Telephone: (010) 68402251, 68402252, 68519138; Fax: (010) 68402253.