Laws of the People's Republic of China

the China Insurance Regulatory Commission

Notice of the China Insurance Regulatory Commission on Printing and Distributing the Detailed Rules for the Implementation of the Interim Measures for Administration of Overseas Use of Foreign Exchange Insurance Funds

Bao Jian Fa [2005] No. 77

All insurance companies and all insurance asset management companies:

With a view to further standardizing the investment activities and ensuring the effective implementation of the Interim Measures for Administration of Overseas Use of Foreign Exchange Insurance Funds, upon the approval of the State Administration of Foreign Exchange, the China Insurance Regulatory Commission has formulated the Detailed Rules for the Implementation of the Interim Measures for Administration of Overseas Use of Foreign Exchange Insurance Funds, and hereby print and distribute them to you.

Please comply with and carry them out earnestly.

the China Insurance Regulatory Commission

September 1, 2005

Detailed Rules for the Implementation of the Interim Measures for Administration of Overseas Use of Foreign Exchange Insurance Funds

Chapter I General Provisions

Article 1

With a view to intensifying the administration of overseas investment of foreign exchange insurance funds, standardizing investment operations, preventing market risks as well as business risks and guaranteeing the legitimate rights and interests of the parties concerned, the present Detailed Rules are formulated in accordance with such laws and regulations as the Insurance Law of the People's Republic of China and the Interim Measures for the Administration of Overseas Use of Foreign Exchange Insurance Funds (hereinafter referred to as the Measures).

Article 2

The overseas investment of foreign exchange insurance funds shall be decided by the board of directors of an insurance company (hereinafter referred to as the entrusting party) and may be entrusted for management to an insurance asset management company within the territory of China or an overseas investment management organization (hereinafter referred to as the entrusted party). The provisions on any other methods of management of foreign exchange insurance funds shall be separately formulated by the China Insurance Regulatory Commission (hereinafter referred to as the CIRC).

Article 3

An entrusting party shall, in accordance with the provisions of the Measures, entrust a commercial bank (hereinafter referred to as the custodian party) to independently keep custody of its foreign exchange insurance funds used overseas as well as its foreign exchange assets as formed in investment (hereinafter uniformly referred to as the foreign exchange insurance funds).

Article 4

An entrusting party shall choose its entrusted party and custodian party in an open, fair and impartial manner, and shall, in accordance with the principles of safety, liquidity and profitability, prudently formulate a plan for strategic allocation of assets.

Article 5

An entrusted party or custodian party shall, in accordance with the principles of being honest and creditworthy, prudent and diligent, loyal and duteous, manage the foreign exchange insurance funds in a fair manner, and guarantee the safety of the foreign exchange insurance funds.

Article 6

The CIRC shall be responsible for formulating the policies for administration of overseas investment of the foreign exchange insurance funds. The CIRC and the State Administration of Foreign Exchange (hereinafter referred to as the SAFE) shall, according to their respective functions and duties, conduct supervision and administration on the overseas investment of the foreign exchange insurance funds according to law.

Chapter II Administration of Application

Article 7

An entrusting party shall, when submitting to the CIRC an application for foreign exchange payment so as to make overseas investment with its foreign exchange insurance funds, simultaneously submit the following documents and materials:

(1)

The documents and materials as prescribed in Article 7 of the Measures;

(2)

The original copy of the decision of the board of directors of the company on the overseas investment with its foreign exchange insurance funds;

(3)

The management system and risk control system for overseas investment, which shall at least include the management rules on the entrusted affairs, elements and procedures in the formulation of the guidance for overseas investment with its foreign exchange insurance funds (hereinafter referred to as the investment guidance), standards for and procedures of selecting the relevant entrusted party and the custodian party within the territory of China, standards for selecting trade partners, information communication mechanism, performance evaluation mechanism, risk control mechanism, measures for supervision and examination, and the mechanism for handling major emergencies,

(4)

A plan of strategic allocation of overseas investment, stating at least the concept of investment, assets and liabilities, investment objectives, investment products investment proportion, investment market, currency allocation, performance benchmark, and arrangement of trading seats, etc.;

(5)

An independent custodian plan of the third party, stating at least the name of the custodian party within the territory of China, the overseas custodian agent, and the name of the secondary custodian and the relevant county where it is located, and the related party relationships with the aforesaid entrusting party and entrusted party;

(6)

A research report on that the relevant entrusted party and the custodian party have carried out their business operations in a law-abiding and prudent manner for the latest 3 years;

(7)

A document of commitment, promising the authenticity of the materials it submits and the performance of functions and duties as prescribed in the Measures and the present Detailed Rules; and

(8)

Other documents and materials as prescribed by the CIRC.

The CIRC shall carry out an examination over the conditions for management of overseas investment as made by an entrusting party according to the relevant provisions of the Measures and the Detailed Rules.

Article 8

An entrusted party within the territory of China that manages the overseas investment of foreign exchange insurance funds shall submit to the CIRC the following documents and materials:

(1)

An application signed by the legal representative or any person authorized thereby;

(2)

The management system and the risk control system for overseas investment, which shall at least include an investment authorization system, an administration system to check out whether or not the relevant laws and regulations are observed, a research and report system, a investment product selection system, a transaction management system, an information management system, and the procedures for investment decision-making, standards for selecting trade partners, indicators of risk evaluation and performance assessment, a risk control mechanism, rules of professional ethics, audit and examination measures and a mechanism for handing major emergencies, etc;

(3)

A management scheme of overseas investment, operational strategies and the arrangement of trade seats, etc.;

(4)

The number of professionals who engage in overseas investment as well as the resumes thereof;

(5)

A statement on the technical supporting systems for the investment with foreign exchange insurance funds, such as the information system, transaction system, and investment management system, etc.;

(6)

A statement on the related party relationship with the entrusting party, the custodian party within the territory of China and the overseas custodian agent;

(7)

A document of commitment, promising the authenticity of the materials it submits and the performance of the functions and duties as prescribed in the Measures and the present Detailed Rules; and

(8)

Other documents and materials as provided by the CIRC.

The CIRC shall, in accordance with the relevant provisions of the Interim Provisions on the Administration of Insurance Assets Management Companies, the Measures and the present Detailed Rules, prudently carry out evaluation on the qualifications of an entrusted party within the territory of China for engaging in the management of overseas investment of foreign exchange insurance funds in terms of corporate governance, assets size, management experience, investment performance, research capability, internal control, and market position, etc.

Article 9

An overseas entrusted party that manages the overseas investment of foreign exchange insurance funds shall satisfy not only the requirements as prescribed in Article 14 of the Measures but also the following requirements:

(1)

Having the qualification of an independent legal-person;

(2)

Having experience in insurance assets management for 5 years or more; and

(3)

Having purchased the liability insurance corresponding to the size of the assets it managements.

Article 10

An overseas entrusted party under any of the following circumstances may be exempted from the restriction that the paid-in capital and net assets or its equivalent in convertible currency may not be less than 60 million US dollars:

(1)

Being an entrusted party of mutual system or partnership, with the size of assets under its management or its equivalent in convertible currency being not less than 200 billion US dollars; and

(2)

The relevant controlling shareholders satisfying the provisions of item (3) of Article 14 of the Measures on paid-in capital and net assets and being able to offer full-liability guaranty.

Article 11

An overseas entrusted party who manages overseas investment of foreign exchange insurance funds shall submit to the CIRC the following documents and materials:

(1)

An application with the signature of the legal representative or a person authorized by it;

(2)

A written statement conforming to the requirements as prescribed in Article 14 of the Measures, Articles 9 and 10 of the present Detailed Rules, and if the sum of paid-in capital and net assets of the entrusted party or their equivalent in convertible currency does not come up to 600 million US dollars, the full-liability guarantee letter of the controlling shareholder shall be provided;

(3)

The management system and risk control system for overseas investment, which shall at least include a investment authorization system, a regularity management system, a research and report system, a variety selection system, a transaction management system, an information management system, and the procedures for investment decision-making, standards for selecting trade partners, indicators of risk evaluation and performance assessment, a risk control mechanism, rules of professional ethics, measures for inspection and examination and a mechanism for handling major emergencies, etc.;

(4)

An overseas investment management plan, operational strategies and the arrangement of trade seats, etc.;

(5)

The number of overseas investment professionals as well as the resumes thereof;

(6)

A statement on the technical supporting systems for the investment with foreign exchange insurance funds such as the information system, transaction system and investment management system;

(7)

The business license (duplicate) as issued by the supervisory organization of the country or region where it is located, or the valid photocopy thereof;

(8)

The position paper on supervision as issued by the supervisory organization of the country or region where it is located or the announcement as signed by the directors or partners of the company upon notarization;

(9)

Financial statements of the company of the latest year as audited by an accounting firm;

(10)

An audit report of the latest year on the internal control system of the company as issued by an accounting firm;

(11)

A photocopy of the valid guarantee slip of liability insurance;

(12)

A statement on the related party relationship between the entrusted party and the entrusting party, the custodian party within the territory of China and the overseas custodian agent;

(13)

A document of commitment, promising the authenticity of the materials it submits and the performance of the functions and duties as prescribed by the Measures and the present Detailed Rules; and

(14)

Other documents and materials as prescribed by the CIRC.

The position paper on supervision and the announcement as mentioned in item (8) of the preceding paragraph shall cover such contents as paid-in capital, net assets, size of the assets under its management, business management experience, and the certification of no major irregularity or rule-breaking act during the latest 3 years.

The CIRC shall, in accordance with the relevant provisions of the Measures and the present Detailed Rules, prudently carry out evaluation on the qualifications of an overseas entrusted party for managing the foreign exchange insurance funds under its management in terms of corporate governance, assets size, management experience, research capability, investment performance, internal control and market position, and issue the opinions on the examination.

Article 12

A custodian party within the territory of China who, under custodianship, manage the overseas investment with foreign exchange insurance funds of an entrusting party shall submit to the CIRC the following documents and materials:

(1)

An application with the signature of the legal representative or a person authorized by it;

(2)

A written statement satisfying the requirements as prescribed in Article 18 of the Measures;

(3)

The certification of qualifications for undertaking the custody business of the overseas investment with foreign exchange insurance funds;

(4)

The procedures for independent custodian operation and management system, which shall at least include the opening of an account, assets preservation, capital supplement and withdrawal, securities transaction and capital settlement, internal control and risk prevention, verification of information with the entrusting party and the entrusted party, selection of the overseas agent and the secondary custodian, the rules of professional ethics, the inspection and examination mechanism and the mechanism for handling major emergencies;

(5)

Financial statements of the latest year of the company as audited by an accounting firm and the announcement as signed by the director of the company upon notarization;

(6)

An audit report of the latest year on the internal control system of the company as issued by an accounting firm, which shall include its custody business;

(7)

A list of global custodian network indicating the names of the overseas custodian agents relating to the entrustment of foreign exchange insurance funds, and secondary custodian agents as well as the countries where they are located, and explanations meeting the requirements as prescribed in Article 26 of the Measures;

(8)

A statement on its related party relationship with the entrusting party and entrusted party;

(9)

A document of commitment promising the authenticity of the materials it submits and the performance of the functions and duties as prescribed by the Measures and the present Detailed Rules; and

(10)

Other documents and materials as prescribed by the CIRC.

The "statement" as mentioned in item (5) of the preceding paragraph shall cover such contents as the paid-in capital, net assets, size of custody assets, experience in custody business, and the document certifying no major irregularity or rule-breaking act in the latest 3 years.

The CIRC shall, in accordance with the Measures and the present Detailed Rules, prudently carry out evaluation on the qualifications of the commercial banks within the territory of China for undertaking the custody business of the overseas investment of foreign exchange insurance funds in terms of capital strength, corporate governance, size of custody assets, business experience, internal control, market position and service level, and issue its opinions on examination.

Chapter III Management of Varieties

Article 13

The currency allocation of an entrusting party in the overseas investment with foreign exchange insurance funds shall be limited to US dollar (USD), Euro (EUR), Japanese Yen (JPY), Great Britain Pound (GBP), Canadian Dollar (CAD), Swiss Franc (CHF), Australian Dollar (AUD), Singapore Dollar (SGD), Hong Kong Dollar and other currencies as approved by the CIRC.

The strategy of currency allocation in the overseas investment with foreign exchange insurance funds shall be subject to the approval of the Investment Decision-making Commission of the entrusting party or the authorized department thereof. The currency allocation shall conform to the provisions of the Measures and the present Detailed Rules as well as the agreement on the management of the overseas investment of foreign exchange insurance funds (hereinafter referred to as the investment management agreement) and the stipulations of the investment guidance.

Article 14

The term "bank deposit" as mentioned in item (1) of Article 9 of the Measures refers to the money required by the entrusted party to be deposited in an overseas bank that promises to pay the principal and interest for it on a periodic basis, including the structured deposit with guaranteed principal and interest as issued by an overseas bank.

The term "foreign government bonds" as mentioned in item (2) of Article 9 of the Measures refers to the bonds issued by a sovereign state in the name of its central government, which promises to pay the relevant principal and interest on a periodic basis, including the mortgage-backed securities (MBS) as guaranteed by the government for duly payment of the principal and interest.

The term "bonds of an international financial institution" as mentioned in item (2) of the Measures refers to the bonds as issued by a policy-related multi-lateral financial institution.

The term "monetary market products" as mentioned in item (4) of Article 9 of the Measures includes the monetary market funds.

Article 15

The investment made by an entrusting party in overseas stocks with the foreign exchange insurance funds shall be limited to the stocks of Chinese enterprises that are listed on the New York Stock Exchange, London Stock Exchange, Frankfurt Stock Exchange, Tokyo Stock Exchange, Singapore Stock Exchange or Hong Kong Stock Exchange.

Article 16

The means of subscription in the primary market and transaction in the secondary market may be adopted for the investment as made by an entrusting party in overseas stocks with its foreign exchange insurance funds. The subscription in the primary market includes the allotment, placement and the participation in the allotment in the name of a strategic investor.

Article 17

As for the financial products in which an entrusting party made the overseas investment with foreign exchange insurance funds, the credit rating as assessed by an international rating institution shall conform to the provisions of Article 9 of the Measures, in particular:

(1)

The credit rating of the bank issuing the structured deposits during the latest three years shall be Grade A or above;

(2)

The credit rating of a Chinese enterprise issuing bonds abroad shall be Grade BBB or above;

(3)

The credit rating of mortgage-backed securities (MBS) shall Grade AAA or the equivalent of Grade AAA; and

(4)

The credit rating of the monetary market funds shall be Grade A-1 or the equivalent of Grade A-1.

Article 18

The proportion of overseas investment as made by an entrusting party with its foreign exchange insurance funds shall comply with the provisions of Article 10 of the Measures, in particular:

(1)

The balance of the structured deposits calculated at the cost price may not exceed 5% of the amount of the foreign exchange payment for investment as approved by the SAFE;

(2)

The balance of the mortgage-backed securities (MBS) calculated at the cost price may not exceed 20% of the amount of the foreign exchange payment for investment as approved by the SAFE;

(3)

The total amount of the stocks as issued abroad by a Chinese enterprise calculated at the cost price may not exceed 10% of the amount of the foreign exchange payment for investment as approved by the SAFE; the amount of the stocks as issued by an enterprise with single investment may not exceed 5% of the total amount of the stocks.

(4)

The bank deposits of a single related party may not exceed 10% of the amount of the foreign exchange payment for investment as approved by the SAFE; the bonds as issued by a single related party may not exceed 3% of the amount of the foreign exchange payment for investment as approved by the SAFE and may not exceed 10% of the total amount of bonds in the very issuance; the stocks as issued by a single party may not exceed 2% of the total amount of the stocks.

The term "related party" as mentioned in item (4) of the preceding paragraph refers to:

(1)

An entrusting party that directly or indirectly holds more than 10 % of the shares of the enterprise;

(2)

An enterprise that holds directly or indirectly more than 10% of the shares of the entrusting party;

(3)

An enterprise that simultaneously holds more than 10 % of the shares of the entrusting party and the enterprise in a direct or indirect way; or

(4)

Any other enterprise as recognized by the CIRC that has an interest relationship with the entrusting party.

Chapter IV Administration of Agreement

Article 19

Where an entrusting party and an entrusted party conclude an agreement on the management of investment, they shall be required to provide the examination opinions as issued by the CIRC. The investment management agreement shall comply with not only all the provisions of the Measures and the present Detailed Rules and the general practice of entrustment but also the following provisions:

(1)

Clarifying the responsibilities and obligations of the entrusting party and the entrusted party;

(2)

Clarifying the restrictions on the investment varieties, investment proportion and investment market, and determining the measures for handling any overstepping of investment quota due to such factors as market fluctuation and credit rating adjustment;

(3)

Clarifying the supervisory responsibilities of the entrusting party and the CIRC on the entrusted party. An entrusted party shall, according to the stipulations and requirements of the investment management agreement, provide all of the information on the management of the foreign exchange insurance funds and related information to the entrusting party and the CIRC in a timely manner;

(4)

Clarifying that the entrusted party shall observe the principle of avoiding interest conflicts;

(5)

Clarifying that the entrusted party shall employ an accounting firm to conduct an audit on the implementation of internal control on an annual basis and the audit report shall cover the foreign exchange insurance funds under its management; and clarifying that the entrusting party has the right to employ an accounting firm to carry out an audit on the foreign exchange insurance funds under the management of the entrusted party and the entrusted party shall be cooperative.

(6)

Clarifying that the entrusted party shall cooperate with the custodian party within the territory to conduct inspection on complying with relevant provisions, and to check the foreign exchange insurance funds, provide relevant information and guarantee the authenticity and accuracy of the information;

(7)

Clarifying that the entrusted party shall, according to the principles of being prudent and duteous, manage the overseas investment of foreign exchange insurance funds and, if any loss has been incurred due to its negligence, misconduct, insufficient balance of securities or capital, any flaw in any article of the agreement as concluded with a third party, system failure or personnel fraudulence, the entrusted party shall be liable for the loss directly arising therefrom and shall bear civil liabilities. The entrusted party shall bear the burden of proving that it is prudent and duteous;

(8)

Clarifying that an entrusted party, who violates the relevant laws and regulations, the provisions of the Measures or the present Detailed Rules, or the stipulations of the investment management agreement or the investment guidance, and thus causes any loss of foreign exchange insurance funds, shall be liable for the loss and shall bear civil liabilities. Resignation of the entrusted party from entrustment may not exempt it from compensation or civil liabilities.

(9)

Clarifying that where an entrusted party violates the relevant laws and regulations, the provisions of the Measures or the present Detailed Rules, uses the foreign exchange insurance funds under its management to seek any improper benefits for himself or any other person, the said illegal benefits shall be incorporated into the foreign exchange insurance funds. And if any loss of the foreign exchange insurance funds is inflicted, the entrusted party shall be liable for the loss and shall bear civil liabilities. Resignation of the entrusted party from entrustment may not exempt it from compensation and civil liabilities.

(10)

Clarifying the methods of withdrawal and payment of investment management fees;

(11)

Clarifying that it is stipulated in the arbitration clause of the investment management agreement that any dispute shall be submitted to an arbitration institution of China or the Hong Kong Special Administrative Region of China;

(12)

Clarifying other relevant matters relating to the rescission and termination of the investment management agreement;

(13)

Clarifying that the Chinese version of the investment management agreement shall prevail. And if foreign language version will prevail according to the agreement, market practice or any other requirement, a Chinese translation shall be attached; and

(14)

Clarifying any other matter that needs to be clarified.

Before an entrusting party and an entrusted party conclude an investment management agreement, they shall employ a professional lawyer with more than 5 years practicing experience to examine the investment management agreement and give legal advice.

Article 20

Where an entrusted party and a custodian party within China conclude a custody agreement on overseas investment of foreign exchange insurance funds (hereinafter referred to the custody agreement ), they shall be required to provide the examination position paper as issued by the CIRC. The custody agreement shall comply with not only all the provisions of the Measures and the present Detailed Rules and the common practice in custody but also the following provisions:

(1)

Clarifying the responsibilities and obligations of the entrusting party and the custodian party within the territory of China;

(2)

Clarifying that the entrusting party shall cooperate with the custodian party within the territory of China to make inspection on complying with the relevant laws and regulations. The custodian party within the territory of China shall cooperate with the CIRC to make inspection on complying with the relevant laws and regulations and to check the foreign exchange insurance funds in a timely manner, provide other relevant information and guarantee the authenticity and accuracy of the information;

(3)

Clarifying the supervisory functions and responsibilities of the entrusting party and the CIRC on the custodian party within the territory of China. The custodian party shall, according to the stipulations and requirements of the custody agreement, provide all the information and the relevant information of the foreign exchange insurance funds under its custody to the entrusting party and the CIRC in a timely manner;

(4)

Clarifying that where the custodian party within the territory of China needs to employ an overseas custodian agent or a secondary custodian, it shall clarify to the entrusting party the standards for selecting an overseas custodian agent or a secondary custodian, the management procedures and supervisory measures, and shall obtain the recognition thereof. The custodian party within the territory of China shall report to the CIRC the result of selection of an overseas custodian agent or a secondary custodian;

(5)

Clarifying that the custodian party within the territory of China shall employ an accounting firm to conduct an audit on the implementation of its internal control on an annual basis and the audit report shall include the foreign exchange insurance funds under its custody; and clarifying that the entrusting party has the right to employ an accounting firm to conduct an audit on the foreign exchange insurance funds under the custody of the custodian party and the custodian party within the territory of China shall provide assistance;

(6)

Clarifying that the custodian party within the territory of China shall, according to the principles of being prudent and duteous, supervise the business operations of the foreign exchange insurance funds under the custody of an overseas custodian agent or a secondary custodian, and if any loss is incurred due to any negligence, misconduct, position deficiency or flaw in any article of the agreement as concluded with a third party, system failure or personnel fraudulence, the custodian party within the territory of China shall be liable for the loss as directly resulted in therefrom and shall bear civil liabilities. The custodian party within the territory of China shall bear the burden of proving that it is prudent and duteous;

(7)

Clarifying that a custodian party within the territory of China who violates the relevant laws and regulations, the provisions of the Measures or the present Detailed Rules, or the stipulations of the investment management agreement or the investment guidance, and thus cause any loss of the foreign exchange insurance funds, shall be liable for the loss and shall bear civil liabilities. Resignation of the custodian within the territory of China from custodianship may not exempt it from compensation or civil liabilities.

(8)

Clarifying that where a custodian party within the territory of China violates relevant laws and regulations, the provisions of the Measures and the present Detailed Rules, or the stipulations of the investment management agreement or the investment guidance by using the foreign exchange insurance funds under its custody to seek any improper benefits for himself or any other person, the benefits shall be incorporated into the foreign exchange insurance funds. And if any loss of the insurance foreign exchange is inflicted, the custodian party shall be liable for the loss and shall bear civil liabilities. Resignation of a custodian within the territory of China from custodianship may not exempt it from compensation or civil liabilities.

(9)

Clarifying the methods of withdrawal and payment of custodian fees;

(10)

Clarifying that the conclusion, interpretation of the custody agreement and the resolution of disputes shall be subject to the relevant laws and regulations of the People's Republic of China and it is stipulated in the arbitration clause of the custody agreement that any dispute shall be submitted for arbitration to an arbitration institution of China or Hong Kong Special Administrative Region of China;

(11)

Clarifying other relevant matters relating to the rescission and termination of the custody agreement;

(12)

Clarifying that the Chinese version of the custody agreement shall prevail, and if, in line with the agreement, market practice or any other requirement, the foreign language version of the agreement concluded between a custodian party within the territory of China and a overseas custodian agent and a secondary custodian will prevail, a Chinese translation shall be attached; and

(13)

Clarifying any other matter that needs to be clarified.

Prior to the conclusion of the custody agreement, the entrusting party and the custodian within the territory of China shall employ a professional lawyer with the qualification of practice for more than 5 years to examine the custody agreement and give legal advice.

Chapter V Management of Investment

Article 21

An entrusting party shall, according to the Guidance for Risk Control in the Utilization of Insurance Funds, establish an investment management system and a risk control system for overseas investment of the foreign exchange insurance funds and formulate a scientific, precise and efficient process for the management of overseas investment.

Article 22

An entrusting party shall take into full account the nature of the foreign exchange insurance funds and, according to the requirements of matching assets with liabilities, intensify and improve the strategic allocation of assets.

Article 23

An entrusting party shall, in light of the standards and the prescribed procedures, invite public bidding in the selection of an entrusted party and a custodian party within the territory of China. As a general principle, an entrusting party can only select one custodian party within the territory of China.

Article 24

An entrusting party shall authorize a custodian party within the territory of China to establish custodian accounts according to the foreign exchange capitals of different entrusted parties, different insurance products as well as different natures respectively, and maintain the independence of all kinds of capital. The custodian party within the territory of China shall provide assistance.

Article 25

An entrusting party listed abroad shall repatriate the foreign exchange insurance funds as collected from the overseas market to China within 6 months. If other laws or regulations of the state provide otherwise, the provisions thereof shall prevail. An entrusting party that has obtained the qualification for overseas investment shall, within 30 days as of obtaining the approval, directly transfer the foreign exchange insurance funds as collected from the overseas market into the custodian account at home or abroad.

Article 26

The investment guidance as formulated by an entrusting party shall at least include the investment concept, investment objective, investment varieties, investment proportion, investment market, and term of investment, the performance benchmark, and the standard for selecting the trade partners as well as the name list thereof, liquidity and risk control requirements. The investment guidance shall be simultaneously served to the entrusted party and the custodian party within the territory of China.

Article 27

An entrusting party who deposits money in a commercial bank other than its custodian party within the territory of China or its overseas custodian agent shall require the bank to provide, to the custodian party within the territory of China, the original copy of the ownership document or the original copy of the document certifying all the ownerships, and the information about the said deposit on a periodic basis. When a deposit is terminated ahead of schedule or expires, it shall be transferred to the designated account of the custodian party within the territory of China.

Article 28

An entrusting party shall examine the investment guidance on a periodic basis and, according to the policy environment, market trend and investment situation, immediately make adjustments and inform the relevant entrusted party and the custodian party within the territory of China of the adjustment. The frequency of examination on investment guidance may not be less than once each year.

Article 29

An entrusting party shall, according to the relevant terms of the investment management agreement, evaluate the investment management capability and actual investment performance of an entrusted party on a periodic basis and adjust the scale of entrusted management accordingly. Where the entrusting party finds that the entrusted party commits any irregularity or rule-breaking act, it may terminate the investment management agreement. The frequency of evaluation of the entrusted party may not be less than once each year.

Article 30

An entrusting party shall, according to the relevant terms of the custody agreement, periodically conduct evaluation on the custodian ability and the actual service performance of the custodian party within the territory of China, the overseas custodian agent and the secondary custodian. Where any party fails to meet the requirements as stipulated by the custody agreement or if any irregularity or rule-breaking act is found, the entrusting party may require the overseas custodian agent or the secondary custodian to be replaced or terminate the custody agreement. The frequency of evaluation of the custodian party within the territory of China may not less than once each year.

Article 31

Both the entrusting party and the entrusted party shall conduct follow-up assessment on the risks concerning foreign exchange rate, interest rate, credit, market, liquidity and operations of overseas investment of the foreign exchange insurance funds so as to control the risks of overseas investment.

Article 32

Before an entrusted party undertakes any investment operation, the relevant entrusting party, entrusted party and custodian party within the territory of China shall reach a consensus on the preparation of documents, transaction operations and the issuance, confirmation and implementation of the trade order and settlement order. The entrusting party and the entrusted party shall inform the custodian party within the territory of China of the personnel that issue the relevant orders, authorization documents thereof and the authorized quota.

Article 33

An entrusted party shall, in strict compliance with the provisions of laws and regulations, the Measures and the present Detailed Rules as well as the stipulations of the investment management agreement and the investment guidance, establish special orders and the special examination system thereof so as to ensure that no trade order will violate the relevant restrictive provisions.

Article 34

An entrusted party may not use foreign exchange insurance funds for undertaking any speculative transaction of foreign exchange, seek any financing by using the foreign exchange insurance funds as a pledge or make investment by any other form of debts.

Article 35

An entrusted party shall work out a written research report prior to making any of the following major decisions:

(1)

Where 10 % of the foreign exchange insurance funds as entrusted for management is involved;

(2)

Where any major adjustment of investment combination is required;

(3)

Where any major adjustment of performance benchmark is required;

(4)

Where any major adjustment of investment risk tolerance is required; or

(5)

Where any major adjustment of the standards for selecting trade partners is required;

Article 36

An entrusted party shall, in accordance with the provisions of the Measures and the present Detailed Rules and the stipulations of the investment management agreement and the investment guidance, take into full account such indicators as credit status, risk nature, profit-making ability, information transparency and liquidity so as to determine the scope of possible products for investment.

Article 37

An entrusted party shall adopt the indexes of risk value and any other risk measure to reveal the risks of different investment products and the overall risk of the foreign exchange insurance funds under entrusted management.

Article 38

Where an entrusted party, due to market fluctuation and credit rating adjustment, fails to carry out investment management according to the relevant provisions of the Measures, the present Detailed Rules and the stipulations of the investment management agreement and the investment guidance, it shall inform the entrusting party and the custodian party within the territory of China in a timely manner, and shall make adjustment within a reasonable period.

Article 39

An entrusted party shall manage different entrusted funds in a fair and impartial manner, and shall provide to its entrusting parties reports on investment performance and risk assessment, etc. of the foreign exchange insurance funds under its management.

Article 40

A custodian party within the territory of China shall carry out inspections on whether or not the investment activities of an entrusted party comply with the relevant provisions. And if any violation of the provisions of the Measures or the present Detailed Rules, or the stipulations of the investment management agreement or the investment guidance is found, the custodian party shall inform the entrusting party and the entrusted party in a timely manner. The entrusting party and the entrusted party shall jointly determine the methods of resolution and deal with it accordingly.

Article 41

A custodian party within the territory of China, an overseas custodian agent as well as a secondary custodian shall, in line with the relevant terms of the custody agreement, be jointly responsible for the settlement, delivery and preservation of the foreign exchange insurance funds under their custody, and shall check the assets in a timely and accurate manner. The original document concerning the ownership of custody assets or the original document certifying all the ownership thereof shall be kept by the custodian party within the territory of China. In case the laws and regulations of the destination region where the investment is made provides otherwise, the provisions thereof shall prevail.

Article 42

Where an entrusted party, due to market fluctuation and credit rating adjustment, fails to carry out investment management according to the provisions of the Measures and the present Detailed Rules and the stipulations of the investment management agreement and the investment guidance, the custodian party within the territory of China shall inform the entrusting party and the entrusted party in a timely manner, supervise the entrusted party to make adjustment within the reasonable period and report the adjustment result to the CIRC.

Chapter VI Supervision and Administration

Article 43

In case an entrusting party entrusts several entrusted parties to manage the overseas investment of its foreign exchange insurance funds, the investment balance shall be calculated in a consolidated manner and may not exceed the investment proportion as prescribed by the CIRC.

Article 44

In addition to reporting the relevant matters to the CIRC according to the provisions of Articles 33 and 34 of the Measures, an entrusting party shall report the following matters as well:

(1)

Within 10 days prior to the end of each quarter, making a report on the balance of the overseas special foreign exchange account and all the revenues and expenditures of the account;

(2)

Within 10 days prior to the end of each quarter, making a report on the structured deposits, which shall at least include such important contents as major terms of the agreement, the floating range of interest rate, deposit term, a summary of internal risks and the potential loss that may affect products;

(3)

Within 10 days prior to the end of each quarter, making a report on the deposits in the related party and purchase of the bonds and stocks of the related party, which shall at least include the related party relationship of all parties to a transaction, business nature, transaction amount, the relevant proportion and pricing policy;

(4)

Prior to the end of June each year, reporting the appraisal reports of the entrusted party and the custodian party on the management of foreign exchange insurance funds in the previous year;

(5)

In the case of increase or decrease in the size of the foreign exchange insurance funds under entrusted management of a single entrusted party, including the decision-making basis therefore and management performance of the entrusted party, reporting it within 15 days as of the day of decision;

(6)

In the case of formulation or modification of the investment guidance, reporting it within 15 days;

(7)

In the case of conclusion of the investment management agreement, custody agreement or legal opinions, reporting it within 5 days;

(8)

In the case of any major emergency in the investment market, or any major emergency that may affect the safety of foreign exchange insurance funds and the investment performance, reporting it within 2 days;

(9)

In case any emergency happens to an entrusted party or a custodian party within the territory of China, reporting it within 2 days.

A report as made by an entrusting party about the matters as prescribed in item (8) of the preceding paragraph shall include the measures for asset preservation and risk prevention.

Article 45

In case a commercial bank has any of the following relationship with an entrusted party, it may not act as the custodian party within the territory of China or the overseas custodian agent of the said entrusted party:

(1)

Where the entrusted party directly or indirectly holds more than 10% of the shares of the commercial bank;

(2)

Where the commercial bank directly or indirectly holds more than 10% of the shares of the entrusted party;

(3)

Where a same enterprise directly or indirectly holds more than 10% of the shares of the entrusted party as well as of the commercial bank; or

(4)

Where the CIRC recognizes any other matter that may affect the independence of the custodian party within the territory of China or the overseas custodian party.

Article 46

In case a commercial bank and an overseas entrusted party has any of the following relationship, they may not simultaneously act as the custodian party within the territory of China, overseas custodian agent and entrusted party of a same entrusting party:

(1)

Where the commercial bank directly or indirectly holds more than 10% of the shares of the overseas entrusted party;

(2)

Where the overseas entrusted party directly or indirectly holds more than 10% of the shares of the commercial bank;

(3)

Where a same enterprise directly or indirectly holds more than 10% of the shares of the commercial bank as well as of the overseas entrusted party;

(4)

Where the CIRC recognizes any other matter that may affect the independence of the entrusted party or the custodian party within the territory of China.

Article 47

An entrusted party shall report to the CIRC the following matters:

(1)

Prior to the end of June each year, reporting the audit report of previous year on the internal control and financial statements as issued by an accounting firm, including the investment performance and the foreign exchange insurance funds under its management;

(2)

Within 15 days as of the end of each quarter, reporting the investment performance and risk evaluation of the foreign exchange insurance funds under its management;

(3)

In the case of any emergency in the investment market, or any emergency that may affect the safety of the foreign exchange insurance funds and the investment performance, reporting it within 2 days;

(4)

In the case of any major change in the registered capital, shareholder structure or partnership, reporting it within 5 days;

(5)

In case any major litigation or serious punishment is involved, reporting it within 5 days; and

(6)

Other matter as prescribed by the CIRC.

A report as made by an entrusted party on the matters as prescribed in item (3) of the preceding paragraph shall include assets preservation and risk prevention measures.

Article 48

A custodian party within the territory of China shall not only report the relevant matters to the CIRC according to the provisions of Article 20 of the Measures, but also report the following matters:

(1)

Prior to the end of June each year, reporting the audit report of previous year on the internal control and financial statements as issued by an accounting firm, including the conditions on the foreign exchange insurance funds under its custody;

(2)

In the case of any major change in the registered capital, shareholder structure or partnership, reporting it within 5 days;

(3)

In the case of a major litigation and serious punishment, reporting it within 5 days;

(4)

In the case of determination or change of the overseas custodian agent and the secondary custodian thereof, reporting it within 5 days; and

(5)

Other matter as prescribed by the CIRC.

Article 49

The CIRC may, according to Articles 9 and 10 of the Measures and the relevant provisions, take the following measures:

(1)

According to the overseas investment of the foreign exchange insurance funds as well as the situation of the international financial market, adjusting all kinds of investment proportions; or

(2)

According to the management capability of the entrusted party, adjusting the investment varieties, investment currencies and the investment market step by step.

Article 50

The CIRC shall, regularly or irregularly, carry out inspections on whether or not the overseas investment of an entrusting party and an entrusted party within the territory of China comply with the relevant regulations, and the conditions on risk control, or may employ such an intermediate organization as an accounting firm to carry out an examination on the overseas investment as made by an entrusting party and an entrusted party within the territory of China.

Article 51

The CIRC shall, in accordance with the relevant provisions of the Measures and the present Detailed Rules, carry out an annual examination on the overseas investment of the foreign exchange insurance funds as made by an entrusted party or a custodian party within the territory of China.

An entrusted party and a custodian party within the territory of China shall provide the documents and materials respectively according to provisions of Articles 8, 9 and 10 and the provisions of Articles 11 and 12 of the present Detailed Rules.

Where the CIRC finds that any entrusted party or custodian party within the territory of China fails to meet the requirements of the Measures and the present Detailed Rules, it may require, in writing, the entrusted party or the custodian party within the territory of China to give relevant explanations.

Article 52

Where an entrusting party or an entrusted party violates the Measures, the present Detailed Rules or the relevant provisions, the CIRC shall hold supervisory talks with or address inquiries to the relevant senior managers and the major business operators. If circumstances are serious, an administrative sanction shall be given to them according to law.

Article 53

Where a custodian party within the territory of China or an overseas entrusted party violates the Measures, the present Detailed Rules or the relevant provisions, the China Regulatory Commission shall record the malpractice. If the circumstances are serious, the CIRC may terminate its business operations of overseas investment of the foreign exchange insurance funds.

Chapter VII Supplementary Provisions

Article 54

The term "foreign exchange insurance funds under the custody of a custodian party" as mentioned in the present Detailed Rules includes the foreign exchange insurance funds under the management of an insurance institution at home or abroad.

Article 55

The term "accounting firm" as mentioned in the present Detailed Rules refers to an accounting firm that has relevant auditing experience in the relevant overseas industries, has earned a worldwide reputation and is widely recognized.

The term "international rating institution" as mentioned in the present Detailed Rules shall be restricted to the Moody's Investors Service, Standard & Poor's, Fitch Ratings and any other rating institution as recognized by the CIRC.

Article 56

The present Detailed Rules shall go into effect as of the day of promulgation.