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CIRCULAR OF THE STATE COUNCIL CONCERNING THE STRICT CONTROL ON THE HIGH GRADE REAL ESTATE DEVELOPMENT PROJECTS

    China's real estate sector is a newly emerging industry, and its continued
growth bears great significance in terms of expediting the urban construction
and renovation and promoting economic development. The real estate sector is
currently in the initial stage with rather weak macro-control over its
development and construction in addition to incomplete and imperfect policies
and regulations, and consequently, various questions meriting prompt solutions
have surfaced in the course of ongoing development. One question is related to
the relatively large scale of real estate construction. In 1993, the nation's
investments accomplished in real estate development and construction soared to
113.8 billion Renminbi(RMB) yuan, representing an increase of 63.2 billion RMB
yuan or a 124.9% rise on 1992, and again with a relatively high rise in 1994
to 160.8 billion RMB yuan, or up 41.3% on 1993. The second question centers on
the irrational structure of real estate investments. With regard to some
regions and cities, the construction and development of deluxe office
buildings, garden villas, holiday villages and deluxe apartment complexes have
exceeded real market demand and in turn have occupied substantial funding,
while inadequate funding has been allocated to residential housing
construction, with supply failing to satisfy market demand. Social problems
have surfaced in some cities due to the excessive demolition of housing and
relocation and the failure to properly arrange for the resettlement of
displaced residents.

    In line with the spirit of the Conference on Central Economic Work held in
November 1994, the current scale of investments in fixed property should be
further controlled, rational adjustments should be made to the investment
structure, the real estate industry should be promoted in a healthy and
orderly manner, and deluxe real estate development projects should be strictly
controlled. Therefore, the following notice is hereby issued:

    1. The examination and approval of deluxe real estate development projects
shall be strictly controlled. Therefore, no approval shall be granted in 1995
for the registrations and the start-ups of construction of the following types
of deluxe real estate development projects, and thereafter all examinations
and approvals shall be strictly controlled: (1) deluxe villa-like residential
housing and holiday villages; (2) projects involving apartment complexes,
office buildings with projected construction costs per unit space one time
higher than ordinary local residential housing and office buildings; (3) the
construction of guest houses, hotels rated at or above four star (or an
equivalent) level.

    In addition, new golf courses, buildings replicating ancient cities,
amusement palaces and etc. shall be strictly prohibited.

    2. Deluxe real estate development projects shall be examined and approved
in accordance with procedures for capital construction and the limits of
specified authority. The State Planning Commission shall be responsible for
the examination and approval of registrations and the start-ups of
construction of deluxe real estate development construction projects covering
100,000 or more square meters or with projected total investments of 200
million or more RMB yuan, for the registrations and the start-ups of the
construction of real estate development projects of units under central and
state departments in Beijing. The planning committees of provinces, autonomous
regions, municipalities directly under the Central Government and cities
listed under separate plans shall be responsible for the examination and
approval of the registration and implementation of the construction of deluxe
real estate development construction projects covering 20,000 or more square
meters but less than 100,000 square meters, or having projected total
investments of 30,000,000 RMB yuan, but less than 200 million RMB yuan, and
shall submit them to the State Planning Commission for the record. The
aforementioned scales and limits of constructions represent the scale and
limits of development projects on single tracts of land, and no approvals
shall be granted beyond the limitations of authority by subdividing tracts or
subdividing over a specified period of time.

    Banks shall refuse to arrange loans for projects which have not been
examined and approved for registration and the start-ups of construction in
accordance with relevant provisions. Projects having received approval for the
start-ups of construction shall have immediate access to self-raised funds and
bank loans; and if self-raised funds are withheld, banks shall not grant
loans, and administration departments shall refuse to complete land-use
formalities, and urban construction departments shall not issue licences
for the planned use of land for construction and related construction
licences.

    3. Funds for deluxe real estate development projects shall be strictly
administered, and investment funds included in the national budget shall not
be used for such projects. All the existing bank loans for real eatate shall
be administered as loans for investments in fixed assets, and shall be
included in the national plan for investments in fixed assets and no loans
shall be granted outside the plan. It shall be strictly prohibited to grant
loans for real estate development projects in the forms of circulating funds
and mortgage loans, or using the call money for borrowing.

    4. Administration of the use of land for real estate construction shall
be strengthened by strictly implementing provisions of the "Land
Administration Law of the People's Republic of China" and the "Law of the
People's Republic of China on Administration of Urban Real Estate". The
requisition, appropriation or transfer of rights to use state-owned lands by
people's governments of cities and counties must be submitted for approval in
accordance with application procedures and limits of authority for approval
specified by the "Land Administration Law of the People's Republic of China"
and by the State Council, and no examination and approval beyond limits of
authority for subdivided tracts of land shall be allowed. The scale of urban
construction shall be strictly controlled and the use of land shall be
carried out economically. Land set aside for growing vegetables and land in
protected areas of basic farmland shall not be used for developing deluxe
real estate projects. With regard to land transfers, the transferee shall
carry out development and construction in strict accordance with specified
time limits provided in contracts, and failure to begin development within
the time limit specified by law will result in non-compensated withdrawal.
Administration of land prices for transferred land shall be strengthened,
and land used for deluxe real estate development projects shall all be
supplied by tender or by auctions.

    5. Administration of the collection and use of proceeds from land
transfers shall be standardized. Proceeds from land transfers are considered
as special funds and shall be included in the financial budgets by financial
administration departments at various levels. Such funds shall be administered
in a planned manner with the receipts and expenditures separated and the
principle of special funds for special use. 50% percent of the proceeds from
land transfers in medium and large cities in coastal areas, and 30% of the
proceeds from land transfers in other areas must be included in local finances
and shall be mainly used by provinces, autonomous regions or municipalities
directly under the Central Government for agricultural and key construction
projects, with the remaining funds used for the construction of urban
infrastructure. Such funds shall not be used for financial running expenses.

    6. Administration of development and construction of real estate projects
using foreign investments shall be strengthened. Foreign investments shall be
actively directed to projects related to renovation of older cities and
ordinary residential housing projects. Enterprises and projects related to the
development and management of real estate using foreign investments shall be
examined and approved in accordance with relevant state provisions and within
the limits of authority for examination and approval. The Chinese party shall
not raise funds for the foreign party, nor provide guarantees for loans the
foreign party has outside the territory.

    Deluxe real estate projects using foreign investments of and over
US$30,000,000 shall be examined and approved by the State Planning Commission,
(with limits of authority for the administration of other projects using
foreign investments remaining unchanged). Projects related to tourist hotels
shall be handled in accordance with relevant existing provisions. Deluxe real
estate projects involving investments of one-hundred million U.S. dollars and
over shall be reported by the State Planning Commission to the State Council
for examination and approval.

    7. Imported materials required for various types of real estate
development and construction projects shall, without exception, be subject to
import duties, and the value-added and consumption taxes in accordance with
provisions outlined in the "Circular of the State Council on Questions
Concerning Levying Taxes on Imported Materials Used for Real Estate
Construction".

    8. Relevant planning, city construction, programming, land administration
and auditing departments, and people's banks, state-owned commercial banks and
other financial institutions shall perform their respective functions, and
shall assume responsibility for exercising strict supervision and
administration of deluxe real estate development projects. Auditing
departments at various levels shall strengthen auditing supervision over
deluxe real estate development projects in terms of sources of funding,
procedures for examination and approval and construction conditions, and shall
insist on conducting an in-depth audit prior to the start-up of construction.

    9. This Circular shall take precedence over relevant provisions previously
issued by the State Council and relevant departments which fail to conform
with the aforementioned Circular regarding real estate development and
construction.