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CIRCULAR OF THE STATE COUNCIL ON THE APPROVAL AND TRANSMISSION OF THE "RULES CONCERNING STRICT PROHIBITION OF SCALPING IN STOCKS BY STATE-OWNED ENTERPRISES AND LISTED COMPANIES" BY THE STATE COUNCIL'S SECURITIES COMMISSION, THE PEOPLE'S BANK OF CHINA AND THE STATE ECONOMIC AND TRADE COMMISSION

    The State Council has approved the "Rules Concerning Strict Prohibition
of Scalping in Stocks by State-owned Enterprises and Listed Companies"
by the State Council's Securities Commission, the People's Bank of China
and the State Economic and Trade Commission which is hereby transmitted
to you for conscientious implementation.

Appendix: RULES CONCERNING STRICT PROHIBITION OF SCALPING IN STOCKS BY
STATE-OWNED ENTERPRISES AND LISTED COMPANIES (The State Council's Securities
Commission, the People's Bank of China and the State Economic and Trade
Commission  May 21, 1997)

    Securities markets in our country are still in their incipient stage of
development and there exist serious phenomena of over-speculation and
violation of rules. Crackdown on activities in violation of rules and
curb of over-speculation are of crucial importance in promoting the sound
development of socialist market economy and maintenance of social stability
to which great importance must be attached. For some time in the recent past,
funds of state-owned commercial banks have flowed into stock markets
through various channels. Some state-owned enterprises and listed companies
have engaged in scalping in stocks with bank credit funds; some listed
companies have put funds from solicited shares meant for production and
operations into stock markets for scalping in stocks; some state-owned
enterprises have put self-owned funds meant for self-development into stock
markets for scalping in stocks. On the one hand, such state of affairs has
encouraged speculation in stock markets; on the other, it has put state-owned
assets in a high-risk state, seriously endangering the security of
state-owned assets. To bring into play the function of the socialist stock
markets in raising funds for economic construction and promoting
transformation of operations mechanism of the enterprises, and to maintain
normal order in the markets, scalping in stock markets by the state-owned
enterprises and listed companies must be curbed. The following rules are
hereby laid down:

    1.The state-owned enterprises shall not scalp in stocks or provide funds
to other institutions for scalping in stocks, nor shall they draw on
state bank credit funds in buying and selling stocks.

    Scalping in stocks referred to in these Rules mean the acts of buying in
and selling of stocks or selling and buying in of stocks within the time
period prescribed by the competent department under the State Council.

    2.Listed companies shall not draw on bank credit funds to buy and sell
stocks, or funds raised through issuance of stocks, nor shall they provide
funds to other institutions for scalping in stocks.

    3.The state-owned enterprises' and listed companies' holding of listed
circulating stocks for long-term investment (beyond the time period prescribed
by the competent department under the State Council) shall be reported to
securities exchanges. Securities exchanges should take measures to strengthen
management and supervise the state-owned enterprises and listed companies in
the observance of the relevant requirements of these Rules.

    4.The state-owned enterprises and listed companies are only entitled to
open a stock account (stock A) in an exchange, and must use the name of the
enterprise proper (the legal person). Opening of a stock account in the name
of a person or provision of funds for the buying and selling of stocks for
individuals by the state-owned enterprises and listed companies shall be
strictly prohibited. Units with the aforesaid problems must amend within
one month starting from the date of promulgation of these Rules; units that
refuse to amend shall be severely penalized and responsibilities of their
legal representatives or those directly responsible shall be investigated.

    5.Securities exchanges, securities registration and settlement agencies
and securities operating agencies shall carry out inspection with respect to
the stock accounts and capital accounts already opened, in case scalping in
stocks by the state-owned enterprises and listed companies, or opening of
stock accounts in the name of individuals and provision of funds for
individual stock accounts are found, those involved shall be asked to
make corrections forthwith and timely reports shall be submitted to the
China Securities Supervisory Commission.

    6.People's governments of all provinces, autonomous regions and
municipalities directly under the Central Government and all departments
under the State Council shall carry out forthwith inspection on the status
of the state-owned enterprises under them in scalping in stocks, all
departments of securities administration of all localities shall conduct
inspection on the status of the listed companies under their respective
jurisdiction in scalping in stocks, and report the inspection results to
the Securities Commission under the State Council. Those state-owned
enterprises and listed companies that go on scalping in stocks upon
promulgation of these Rules, once investigated and verified, their revenue
shall all be confiscated and fines imposed; for enterprises embezzling bank
credit funds for buying and selling stocks, the banks shall suspend additional
new loans, and recover the embezzled loans within the specified time period;
for the leading persons-in-charge and those directly responsible of the
state-owned enterprises shall be given sanctions of removal from their posts
or expulsion by their competent departments; for leading persons-in-charge and
those directly responsible of the listed companies, the China Securities
Supervisory Commission shall confirm and proclaim them to be barred to market
access.

    Specific measures for the implementation of the above Rules shall be
promulgated by the competent department under the State Council separately.