Laws of the People's Republic of China

Circular of the State Administration of Foreign Exchange on Relevant Issues concerning the Administration of Foreign Exchange on Fund Management Company's Overseas Investment in Securities

Hui Fa [2006] No. 46 August 30, 2006

Branch offices and foreign exchange control departments of the State Administration of Foreign Exchange in all provinces, autonomous regions and municipalities directly under the Central Government, branch offices in the cities of Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

In order to meet the reasonable demands of domestic individual residents and institutions in overseas financial investment and assets management, and to regulate the administration of foreign exchange on fund management company's overseas investment in securities, and in accordance with the spirit of the Announcement of the People's Bank of China [2006] No. 5, a circular is hereby given on relevant issues as follows:

Article 1

Where a fund management company handles the overseas investment in securities, it shall in advance obtain an approval, and obtain a qualification in dealing with foreign exchange business, and a quota of overseas investment in securities from the local branch offices or foreign exchange control departments (hereinafter referred to as the foreign exchange bureau) of the State Administration of Foreign Exchange. And a fund management company may also apply for a qualification in dealing with foreign exchange business when it applies for a quota of overseas investment in securities.

Article 2

A fund management company may apply for dealing with part or all of these foreign exchange businesses as follows:

(1)

Foreign exchange assets management;

(2)

Foreign exchange capital investment;

(3)

Foreign exchange inter-bank borrowings;

(4)

Status enquiry and advisory services;

(5)

Other businesses approved by the State Administration of Foreign Exchange.

A fund management company's dealing with the businesses of foreign exchange assets management and foreign exchange capital investment shall be in line with the relevant prescriptions of China Securities Regulatory Commission (hereinafter referred to as the CSRC).

Article 3

A fund management company shall apply to the local foreign exchange bureau for a qualification in dealing with foreign exchange business with these documents as follows:

(1)

An application in written form covering the basic situation of the company, the internal organizational structure, r¨¦sum¨¦s and relevant qualification certificates of the company's higher managements in foreign exchange business, the feasibility analysis for dealing with foreign exchange business, service conditions etc.;

(2)

A duplicated copy of the original copy of the Corporation License for Fund Management Company issued by the CSRC;

(3)

The company's internal control management system and risk prevention measures in foreign exchange business;

(4)

The company's financial statement of the previous year audited by an accounting firm, and a capital assessment report audited by an accounting firm for the company which was established less than 1 year ago;

(5)

Other documents required by the foreign exchange bureau.

The local foreign exchange bureau shall, within 20 work days as of the date of receiving the complete application documents, give an opinion of first instance in accordance with the Code of Procedure on Examining and Verifying the Fund Management Company's Market Access to Foreign Exchange Business (See Annex 1), and submit them, in accordance with the procedures, to the State Administration of Foreign Exchange, which shall, within 20 work days as of the date of receiving the complete application documents, make a decision of approval or rejection; and if approved, a License for Foreign Exchange Operation in Securities Business shall be issued.

Article 4

A fund management company shall apply to the local foreign exchange bureau for a quota of overseas investment in securities with these documents as follows:

(1)

An application covering the basic situation of the applicant, the investment quota to be applied for, the fund type to be established (open/close), the quantum of the fund to be issued, capital resources and a investment plan, and a model of the written agreement to be concluded with the investors;

(2)

A License for Foreign Exchange Operation in Securities Business or the application documents prescribed in Article 3 of this Circular;

(3)

Documents or relevant evidentiary materials issued by the CSRC to approve its business of overseas investment in securities;

(4)

The company's financial statement of the last year audited by an accounting firm;

(5)

Other documents required by the foreign exchange bureau.

The local foreign exchange bureau shall, within 20 work days as of the date of receiving the complete application documents, give an opinion of first instance in accordance with the Code of Procedure on the Foreign Exchange Business of the Fund Management Company's Overseas Investment in Securities (See Annex 2), and submit them, in accordance with the procedures, to the State Administration of Foreign Exchange, which shall, within 20 work days as of the date of receiving the complete application documents, make a decision of approval or rejection; and if approved, an investment quota and fund quantum shall be clearly defined.

Article 5

A fund management company shall, with the relevant approval documents issued by the foreign exchange bureau, open a self-owned foreign exchange capital account at a designated foreign exchange bank to deposit the foreign exchange capital and earnings of this company hereof, and report to the local foreign exchange bureau for records within 5 work days as of the opening of the account hereof.

The scope of receipts of the self-owned foreign exchange capital account of a fund management company is: the remitted foreign exchange capital, earnings from foreign exchange business and other foreign exchange receipts approved by the foreign exchange bureau, and the scope of expenditures is: foreign exchange settlement, current expenses and capital account expenditures approved by the foreign exchange bureau.

Article 6

A fund management company shall, with the approval documents of investment quota issued by the foreign exchange bureau, open a foreign exchange account for overseas investment in securities to deposit the raised capital and subscription, redemption, dividend and other foreign exchange capitals, and report to the local foreign exchange bureau for records within 5 work days as of the date of the opening of this account hereof.

The scope of receipts of the foreign exchange account for overseas investment in securities of a fund management company is: capitals raised from domestic individual residents and institutions, capitals drawn from domestic custody accounts, capitals remitted by domestic individual residents and institutions for subscription of funds, and other foreign exchange receipts approved by the foreign exchange bureau, and the scope of expenditures is: capitals drawn to domestic custody accounts, capitals for paying the investors dividends and redemptions, and other foreign exchange expenditures approved by the foreign exchange bureau.

Article 7

A fund management company shall, after obtaining the investment quota approved by the foreign exchange bureau, conclude a custody agreement with a domestic custodian and open a domestic custody account to custody all its assets for overseas investment in securities. And a domestic custodian shall accord with the conditions prescribed by China Banking Regulatory Commission.

A fund management company shall, within 5 work days as of the date of the opening of this account hereof, file with the local foreign exchange bureau for records the opening of this account hereof and the custody agreement.

The scope of receipts of a domestic custody account is: capitals drawn from the foreign exchange account for overseas investment in securities of a fund management company, capitals drawn from an overseas foreign exchange settlement account, and other foreign exchange receipts approved by the foreign exchange bureau, and the scope of expenditures is: capitals drawn to an overseas foreign exchange settlement account, capitals drawn to the foreign exchange account for overseas investment in securities of a fund management company, capitals for paying the investors dividends and redemptions, capitals for paying the custodian fees, management fees and fees for various kinds of formalities, and other expenditures approved by the foreign exchange bureau.

Article 8

A domestic custodian shall open an overseas foreign exchange settlement account for a fund management company at an overseas custodian agency, which is used in capital settlement business with the overseas securities registration and settlement institutions etc., and file with the State Administration of Foreign Exchange the opening of this account hereof within 5 work days as of the date of the opening of this account hereof.

The scope of receipts of an overseas foreign exchange settle account is: capitals drawn from a domestic custody account, capitals acquired through the sale of various kinds of overseas financial assets, dividend distribution and interest receipts and other receipts approved by the foreign exchange bureau, and the scope of expenditures is: capitals drawn to a domestic custody account, capitals for purchasing various kinds of overseas financial assets, capitals for paying relevant fees, and other expenditures approved by the foreign exchange bureau.

Article 9

A fund management company may remit out and remit in the balance between the subscription and redemption of open funds through a domestic custody account, and the accumulated net remit-out amount of a fund management company shall not exceed the investment scale calculated on the basis of the investment quantum approved by the foreign exchange bureau.

Article 10

The subscription of funds by a domestic individual resident and institution shall be handled through banks with the written agreements concluded between it and a fund management company. An individual, when subscribing funds, shall use its foreign exchange deposit in a domestic bank rather than directly using foreign currency cash, and a domestic institution shall not subscribe funds with debt foreign exchange capitals.

Article 11

The foreign exchange capitals acquired by a domestic individual resident and institution from the redemption and dividend of funds shall undergo the formalities of withdrawal and transfer at a bank with a payment order from a fund management company, and be transferred to its foreign exchange deposit account. An individual shall not directly draw cash or foreign exchange settlement from its foreign exchange account for overseas investment in securities. The foreign exchange capitals acquired by a domestic institution from the redemption and dividend of funds shall be transferred to its former foreign exchange account by a bank.

Article 12

A domestic custodian shall, in accordance with the prescribed pattern (See Annexes 1, 2 and 3), submit data to the State Administration of Foreign Exchange within 7 work days after the end of each month, and conduct submission on international receipts and expenditures in accordance with relevant prescriptions.

Article 13

The foreign exchange bureau of where a fund management company is located shall monthly tabulate and submit to the State Administration of Foreign Exchange the openings and cancellations of the self-owned foreign exchange accounts, foreign exchange accounts for overseas investment in securities, domestic custody accounts of the fund management companies within the jurisdiction of its own.

Article 14

A fund management company and bank in violation of the prescriptions in this Circular shall be punished by the foreign exchange bureau in accordance with the Foreign Exchange Control Regulations of the People's Republic of China and relevant administrative regulations on foreign exchange. With regard to a domestic custodian in a gross violation, a fund management company may be instructed by the foreign exchange bureau to change the custodian hereof; and with regard to a fund management company in a gross violation, the foreign exchange bureau may cancel its investment quota or revoke its License for Foreign Exchange Operation in Securities Business.

Article 15

This Circular shall come into force as of the date of promulgation. All branch offices and foreign exchange control departments, after receiving this Circular, shall timely redistribute this Circular to the central branch offices within their jurisdictions, and redistribute this Circular and the annexed lists to the fund management companies and designated foreign exchange banks within their jurisdictions. And if problems occur in the implementation, the State Administration of Foreign Exchange shall be timely informed.

Annexes

(1)

Code of Procedure on Examining and Verifying the Fund Management Company's Market Access to Foreign Exchange Business (omitted)

(2)

Code of Procedure on the Foreign Exchange Business of the Fund Management Company's Overseas Investment in Securities (omitted)

Annexed Lists

(1)

Monthly Report on Overseas Investment in Securities by Qualified Domestic Institutional Investor (I)

(2)

Monthly Report on Overseas Investment in Securities by Qualified Domestic Institutional Investor (II)

(3)

List on Capital Remit-outs and Remit-ins by Qualified Domestic Institutional Investor