Laws of the People's Republic of China

Yin Jian Fa [2006] No. 95

Each banking regulatory bureau and policy bank:

We hereby print and distribute the Detailed Rules for Implementing the Policies on Policy Finance for Supporting Major National Scientific and Technological Projects to you. Please abide hereby.

China Banking Regulatory Commission

December 28, 2006

Detailed Rules for Implementing the Policies on Policy Finance for Supporting Major National Scientific and Technological Projects Chapter I General Rules

Article 1

For the purpose of implementing some auxiliary policies for the "National Outlines for Medium and Long-term Planning for Scientific and Technological Development (2006-2020)" (hereinafter referred to as the "Planning Outline"), creating an incentive financial environment for independent innovations, encouraging and leading policy banks and other financial institutions to provide major national scientific and technological projects with financial services, and strengthening the efforts of policy finance supports to independent innovations and industrialization, these Detailed Rules are formulated by China Banking Regulatory Commission (hereinafter referred to as CBRC) under the related state laws and regulations.

Article 2

The term "policy finance" as mentioned in these Detailed Rules refers to the financial services provided by financial institutions as required by the state to designated projects, industries or regions in order to achieve certain policy goals.

Article 3

Policy banks shall enhance their awareness of social responsibilities, and consider the support to major national scientific and technological projects and hi-techs as the concrete measures to practice the scientific outlook on development, promote the construction of an innovative society, advance sustainable development, as well as the effective means to cultivate and enlarge customer groups.

Article 4

In order to reflect various special policy business and projects for supporting major national scientific and technological projects, a policy bank shall open a special account, as well as conduct special project management and independent accounting.

Article 5

Policy banks shall follow the principles of policy, safety, liquidity, and profitability, conduct operation and examine loans independently, assume risks by themselves, and mainly support major national scientific and technological projects.

Article 6

Policy banks shall conduct related business strictly under these Detailed Rules. CBRC and its dispatched offices shall supervise policy banks' business activities of supporting major national scientific and technological projects under law.

Chapter II Fields and Conditions of Supports

Article 7

The major national scientific and technological projects that shall be supported by policy banks include: major special projects in the "Planning Outline" and major projects in the main national scientific and technological plans, the major national scientific and technological special projects ascertained and recommended by the related state organs, scale financing and scientific and technological achievement conversion in major national scientific and technological industrialization projects, hi-tech industrialization projects, digestion and absorption of brought-in technologies projects, hi-tech product export projects, etc.

Article 8

The major national scientific and technological projects supported by policy banks shall satisfy the following requirements:

(1)

Complying with the related policies in the "Planning Outline", and satisfying the requirements in terms of national industrial planning, industrial policies, project examination procedures, land use policies, land use standards, environmental protection, production safety, etc.;

(2)

Within the scope supported by policy banks, giving priority to the projects which are listed into national scientific and technological plans and whose products and technologies are innovative;

(3)

Complying with the related laws and regulations of the state, enabling the construction of project to be approved by the related state organ, and ensuring the lending to be used for major national scientific and technological projects;

(4)

Possessing optimistic foreground in domestic and foreign markets, and having strong competitive strength and profit-making ability;

(5)

The project applicant shall be an enterprise (public institution) legal person approved and registered by the administrative authority for industry and commerce (or the competent authority) under law, be qualified to assume civil liabilities, may carry out independent business operation and independent accounting;

(6)

The project applicant has established a corporate governance structure with defined properties, clarified duties, reasonable division of work and balanced powers, and has made normative internal management system and operable risk management system ;

(7)

The project applicant has enough capabilities of repayment or risk coverage, and can provide third party suretyship, or mortgage or pledge under law; and

(8)

Other requirements considered necessary by the policy bank.

Article 9

The state shall decide the undertakers of policy financial services for major national scientific and technological projects through bid invitation, and policy banks shall, in the identity of bidders, participate in the bidding activities in accordance with law. Commercial banks and other institutions shall undertake policy finance business as acquired from the bid invitations that are organized by the state strictly according to the conditions stipulated in the bidding documents, and manage the accounts separately.

Chapter III Prevention and Control of Risk

Article 10

Policy banks may, according to the related provisions of the state, enjoy the supported and recognized risk premium and interest discount policies for major national scientific and technological projects. The unrecognized projects shall be operated subject to the principle of market orientation.

Article 11

Policy banks shall pay close attention to various risks in relation to major national scientific and technological projects and hi-tech loans including technological risks, credit risks, market risks, operational risks, legal risks and so on, intensify the identification, metrology, monitoring and control of such risks, and shall, in accordance with the credit granting flow and characters of these loans, make special risk management measures and business operational procedures, establish corresponding risk management system and internal control system, set up and perfect the incentive and restrictive mechanism as well as the assessment and appraisal mechanism.

Article 12

Policy banks shall, in light of the phases of acceptance, check, examination, approval and post-loan management of the application for major national scientific and technological project loans, separately set down respective occupational ethics and conduct code, definite corresponding powers and duties as well as assessment standards.

Article 13

Policy banks shall build up and perfect corresponding statistical information systems, ensure the accuracy, authenticity and integrity of loan information, and effectively monitor the overall situation of the loans.

Article 14

Policy banks shall correctly evaluate the cash flow of the loans by considering the creativity, leading status, applicability, and possibility of intellectual property protection of the technologies having been adopted or to be adopted by borrowers of major scientific and technological projects and hi-tech loans, as well as the market foreground of these technologies and related products. They shall also correctly evaluate the debt grade of such loans in light of the third party suretyship, mortgage, pledge and other risk mitigation factors of the loans.

Article 15

Policy banks shall correctly evaluate the borrowers' credit grades in light of the assets and liabilities, technical innovation capabilities, operation capabilities, guidance of industrial policies, efforts in policy supports, etc. of borrowers of major scientific and technological projects and hi-tech loans.

Article 16

Policy banks shall prudentially consider the risks suitable to be assumed by banks in light of the maturity as well as industrialization or market-orientation stage of the technologies having been adopted or to be adopted by borrowers of major scientific and technological projects or hi-tech loans. They shall pay attention to dispersing or transferring loan risks by way of cooperation on venture capital, industrial investment funds, fiscal investment or financing, or other equity investment or financing, or through syndication loans, government sub-loans, or other means including insurance, asset securitization, credit derivatives and so on.

Article 17

Policy banks shall actively probe into the experiment of granting loans with intellectual property or other forms of intangible assets as mortgage or pledge on the basis of the principles of controllable risks and compliance.

Article 18

Policy banks shall adopt the expert appraisal mechanism, and shall, in accordance with needs, entrust experts in the areas of technology, finance, accounting, related industries and law, etc. to investigate and evaluate the technologies, products, market, accounting situation as well as policies and regulations, etc. of projects.

Article 19

A project borrower must open a special account in the related policy bank or in the designated agency, conduct special management, special accounting, use funds for special purposes strictly according to the policy bank's credit management provisions and contractual requirements.

Article 20

Policy banks shall establish a risk pre-warning mechanism. In case a project borrower encounters damage of the credit structure, misappropriates loans, short of capital, enterprise restructuring or reform, lawsuit, major breach of contract, vicious incident or other major risks, the related policy bank shall stop granting loans, and recover in advance the principal and interest of the loans that it has granted.

Article 21

Policy banks shall actively support small scientific and technological enterprises, set up and perfect such mechanism as those of risk pricing, independent accounting, high-efficiency loan examination and approval, incentive and restrictive, professional training and breach information circulation of loans.

Article 22

Policy banks shall accurately classify loans into five categories on the basis of the risks of loans , and shall fully draw reserves according to the Measures for Administering the Withdrawal of Reserves for Non-performing Debts by Financial Enterprises (Cai Jin [2005] No. 49) so as to enhance the risk-preventing ability and make up loan losses.

Chapter IV Supplementary Rules

Article 23

CBRC shall be responsible for interpreting and amending these Detailed Rules.

Article 24

These Detailed Rules shall enter into force as of the date of distribution.