Laws of the People's Republic of China

No. 42

The Financial Rules for Financial Enterprises have been deliberated and adopted at the executive meeting of this Ministry. They are hereby promulgated and shall enter into force as of January 1, 2007. Minister of the Ministry of Finance, Jin Renqing

December 7, 2006

Financial Rules for Financial Enterprises Chapter I General Rules

Article 1

In order to strengthen the financial management of financial enterprises, regulate the financial acts of financial enterprises, promote the establishment and improvement of the legal person governance structure, prevent the financial risks of financial enterprises, protect the lawful rights and interests of financial enterprises and of the parties concerned, and maintain the social and economic order, these Rules are formulated according to the relevant laws, administrative regulations, and relevant provisions of the State Council.

Article 2

The state-owned and state controlling financial enterprises, financial controlling companies, guaranty companies, urban commercial banks, rural commercial banks, rural cooperative banks, credit cooperatives (hereinafter referred to as the financial enterprises) established within the territory of China according to law shall be governed by these Rules.

Other financial enterprises shall implement these Rules by analogy.

Article 3

According to these Rules and the needs of its development, a sound internal financing management system shall be established by a financial enterprise, a functional department for financing management shall be set up, professional personnel for financing management shall be equipped with, the methods, such as planning, forecasting, making budgets, controlling, supervising, evaluating, accessing and analyzing shall be synthetically used to raise funds, operate assets, control costs, distribute proceeds, allocate resources, reflect the status of business operation, prevent and eliminate financial risks, realize the continuous business operation and maximize the value.

Article 4

The financial management work of the financial enterprises shall be guided, administered and supervised by their respective level of the finance departments of the people's governments (hereinafter referred to as the finance departments).

The institution dispatched by the finance departments of a provincial people's government or above shall guide, administer and supervise the financial management work of the financial enterprises in accordance with the prescribed functions.

Within 30 days after it completes the industrial and commercial registration, the photocopies of its establishment approval certificate, business license, capital verification certification, and articles of association shall be filed with the finance department at the same level by a financial enterprise.

In case a financial enterprise split up, incorporate, establish a branch, or modify any key industrial and commercial registration item, the photocopies of the relevant modification documents shall be filed with the finance department at the same level by a financial enterprise within 30 days after it completes the modification to the industrial and commercial registration.

Article 5

A financial enterprise shall pay taxes according to the law. In case the financial treatment of a financial enterprise is inconsistent with any provision of any law or administrative regulation on taxation, it shall be adjusted in accordance with law when paying taxes.

Chapter II Functions and Powers

Article 6

The following functions in financial management shall be performed by the finance department:

(1)

Supervising the financial enterprises' implementation of these Rules and other provisions on financial management, guiding and urging financial enterprises to establish a sound internal financial management system;

(2)

Guiding and urging financial enterprises to establish a sound financial risk control system, monitoring the financial risks and business operation status of financial enterprises and supervising the financial acts of financial enterprises;

(3)

Enhancing the administration of the financial information of financial enterprises and implementing financial evaluation of financial enterprises;

(4)

Supervising financial enterprises' acceptance of the social audit and asset assessment;

(5)

Formulating and implementing the finance and financial policies on promoting the reform and development of financial enterprises, and organizing professional trainings to the financial managerial personnel of financial enterprises; and

(6)

Other financial management functions as provisioned in the relevant laws and administrative regulations.

Article 7

A financial enterprise's investors (hereinafter refers to as investors) usually perform the following financial management powers via the (general) meeting of shareholders, board of directors or any other form of governance body:

(1)

Executing and urging the business operator to implement the provisions of the state on the financial management of financial enterprises;

(2)

Determining the internal financial management system and clarifying the financial management powers of the business operator;

(3)

Determining the set-up of functional department for financial management;

(4)

Determining the financial plans, financial budgets, fund-raising, investment, disposal of important assets, and according to law, guaranteeing beyond the scope of the main guaranty business, donation, reorganization, remuneration to the business operators, profit distribution and other important financial affairs;

(5)

Implementing financial supervision over and financial evaluation of the business operator and deciding to hire or dismiss the financial person-in-charge;

(6)

Determining to hire or dismiss the social intermediary agency which engages in businesses of social audit and asset assessment; and

(7)

Performing other financial management powers under the articles of association.

The investors may vest in all or some of their financial management powers to the business operator by way of system criterion or articles of association.

The chief financial officer may be appointed or recommended by the financial enterprise to any controlling enterprise according to the provisions.

Article 8

A financial enterprise's business operator (hereinafter referred to as the business operator) performs the following financial management powers according to provisions:

(1)

Executing the relevant provisions of the state on the financial management of financial enterprises;

(2)

Working out internal financial management bylaws, submitting them to the finance department at the same level under the approval of the investors, and organizing the concrete implementation thereof;

(3)

Organizing the financial forecasts, working out drafts of financial plans and financial budgets, and implementing the financial control, analyses and evaluation;

(4)

Organizing the execution of financial management plans on fund raising, investment, disposal of important assets, guaranty, donation, reorganization, and profit distribution;

(5)

Organizing the examination and approval of financial affairs;

(6)

Organizing to pay taxes and administrative fees;

(7)

Carrying out the relevant provisions of the state on the remunerations to employees and labor protection, paying social insurance premiums, housing accumulation funds, etc., and guaranteeing the lawful rights of the employees;

(8)

Collecting the financial information and organizing the preparation and submission of financial statements;

(9)

Bringing forward proposals on hiring or dismissing the financial person-in-charge;

(10)

Cooperating in the audit, evaluation and inspection carried out by the related institutions; and

(11)

Performing other financial management powers in light of the articles of association as well as the requirements of the (general) meeting of shareholders.

Chapter III Financial Risks

Article 9

In accordance with these Rules as well as the requirements of its internal financial management bylaws, a sound financial risk control system concerning the identification, measurement, monitoring and control of financial risks shall be set up by a financial enterprise, the power, procedures, emergency plan and specific measures for the management of financial risks, liabilities of the parties concerned to any financial risk shall be nailed down, and the financial risks shall be prevented and eliminated.

Article 10

A financial enterprise shall set up a standard and effective capital replenishment mechanism, maintain its business scale adaptive to its capital scale, and meet the capital adequacy ratio and solvency requirements as prescribed in the related laws and regulations.

Its capital adequacy ratio may not be less than 8% if a financial enterprise engages in businesses of a commercial bank and its core capital adequacy ratio may not be less than 4%. Its solvency adequacy ratio may not be less than the prescribed figure if a financial enterprise engages in insurance businesses. Its net capital liability ratio shall comply with the corresponding requirement as prescribed if a financial enterprise engages in securities businesses.

Article 11

In light of the principle of guaranteeing the interests of the parties concerned, ensuring the solvency and carrying out the continuous business operation and according to the relevant laws and regulations, the asset/liability ratio shall be controlled and enough amount of fund to repay the debts shall be prepared by a financial enterprise.

As a financial enterprise engaging in the banking businesses, a deposit reserve and enough amount of payment fund shall be prepared. As a financial enterprise engaging in the insurance business, a capital reserve shall be prepared at 20% of the registered capital and deposited in a designated bank, which is not used except for repaying debts when liquidating. As a financial enterprise engaging in securities businesses, the asset/liability ratio shall meet the corresponding requirement as prescribed.

Article 12

The estimation of various types of assets shall be carried out on a regular basis or at least by the end of each year, and the dynamic evaluation shall be gradually realized. According to the provision, the risks shall be classified into different categories and asset impairment provision on the difference between the recoverable amount and the book value shall be made in accordance with the related provisions of the state.

For an asset with an impairment provision, the supervisory responsibilities shall be fulfilled by the financial enterprise. In case it is recoverable or can be used continuously, it shall be recovered or used. In case a loss has been made, it shall be verified and written off in accordance with the related procedures. In case it has been written off, the records of written-off accounts shall be preserved.

Article 13

As a the financial enterprise, the changes of market interest rates and exchange rates shall be timely analyzed to forecast the likely risks and the financial derivative instruments shall be accepted to decrease the loss to be incurred by any interest rate risk or exchange rate risk in light of the prescribed procedures.

Article 14

In case a financial enterprise has any connected transaction, the prescribed procedures shall be carried out and the total amount and scale shall be controlled according to the provision, and the principle of openness, fairness and impartiality shall be followed, the price for the resource, labor service or obligation shall be determined and timely settled, the acts of dominating profits or dodging taxes through the connected transaction are forbidden.

Article 15

In case a financial enterprise entrusts any other institution to offer financial management services or engage in other businesses, a risk assessment shall be made, a written contract shall be concluded to clarify the authorization and the concrete operation procedures, the accounts shall be regularly checked and specific measures for the prevention of risks shall be formulated.

In case a financial enterprise entrusts any other institution to offer financial management services or conduct other businesses, its devoted fund may not impact its main business and the related revenue shall be integrated into the in-statement accounting.

Article 16

In case a financial enterprise is entrusted to grant loans, engage in derivative products, conduct securities future transactions, buy and sell gold, manage assets or carry out other businesses, the entrusted businesses shall be separated from its own businesses and the distribution of the proceeds and the bearing of the liabilities shall be according to the contractual stipulations. The client's fund may not be misappropriated; the business risks may not be transferred to the client.

Article 17

In case a financial enterprise provides an external guaranty, it shall conform to the related laws and administrative regulations, in accordance with the credit standing and solvency of the party guaranteed, the corresponding risk control measures shall be taken, the account books for check shall be established and follow-up supervision shall be timely conducted.

In case a financial enterprise plans to provide a guaranty beyond the scope of its main guaranty business, a resolution shall be made by its (general) meeting of shareholders or board of directors. In case it wants to provide an external guaranty to its investors or to its actual controller, a resolution shall be made by its (general) meeting of shareholders.

Article 18

The total volume of off-statement businesses shall be controlled by the financial enterprise according to its capital scale.

On the basis of the risk levels, the authorization decisions about the off-statement businesses shall be made by the financial enterprise, the authorization decisions shall be strictly executed and any illegal practice is forbidden.

All off-statement businesses shall be timely recorded, the changes shall be tracked and checked to the off-statement businesses, the possible losses shall be forecasted and the possible losses shall be disclosed according to the related provisions.

Article 19

For establishing a branch institution, the working capital shall be appropriated in keeping with the business scale of the branch institution to be established, which may not exceed the prescribed amount.

The financial management system of unified accounting and fund disposition and hierarchical management in respect of its branch institutions shall be adopted. In case conditions are ripe, a financial management system of unified accounting and fund disposition and unit-based business management shall be adopted.

The financial supervision over its branch institutions shall be strengthened, the abnormal changes of funds shall be paid attention to, the follow-up analyses of the financial indicator of its branch institutions shall be supervised and made, and its overseas branch institutions shall be urged to comply with the provisions of the corresponding country (region) governing the financial management of financial enterprises.

Chapter IV Fund Raising

Article 20

The raising of capital of a financial enterprise shall be subject to the related provisions of the state on capital management, a fund-raising plan shall be worked out according to its development strategy and business plan and the prescribed procedures shall be performed.

Within the scope permitted by the laws and administrative regulations, the financial enterprise may accept capital contributions with a currency, as well as kind, intellectual property, land use right and other non-currency properties, of which the value may be assessed in a currency and which may be transferred to others, or raise capital by way of issuing stocks.

To accept any capital contribution of non-currency property, its value shall be evaluated, the property shall be verified and the value upon assessment and confirmation or as stipulated in the contract shall be recorded. For any capital raised by way of issuing stocks, the value shall be recorded in accordance with the par value of the stocks.

To raise capital, a financial enterprise shall hire an accounting firm to check the capital. A capital contribution certificate shall be issued to the investors after it has gone through the formalities for the industrial and commercial registration.

Article 21

During the continuous business operation period of this financial enterprise, the capital raised by a financial enterprise may not be withdrawn except for lawful transfer by the investors.

During the course of raising capital of a financial enterprise, the amount of capital contributions of the investors in excess of the capital (including the net surplus on stocks) shall be reckoned in the capital reserve.

Upon resolution of the investors, the capital reserve may be converted into capital.

Article 22

The fund raising by way of borrowing money, taking in deposits, issuing bonds, finance lease, or re-loan from the People's Bank of China shall be subject to the related provisions of the state, the financing purpose shall be clarified, the needs of fund and debt risks shall be considered and a written contract shall be signed. It may not illicitly increase the interest rate or payment criterion or do so in disguise. It shall reasonably adjust the liability structure in good time and reduce the financing costs.

Article 23

In case a financial enterprise obtains the investments, fiscal subsidies and other fiscal funds from the state, it shall treat respectively according to the circumstances as follows:

(1)

In case the fund is an investment directly made by the state, it shall increase the capital or capital reserve of the state according to the related provisions of the state;

(2)

In case the fund is an investment subsidy, it shall increase the capital reserve or capital. In case there is any provision on the ownership when the state appropriates the fund, this provision shall be abided by. In case there is no such provision, it shall be shared by all investors;

(3)

In case the fund is a discounted loan interest or a special subsidy, it shall be treated as proceeds;

(4)

In case the fund is used for making up loss, salvaging loss or for any other purpose, it shall be treated as proceeds;

(5)

In case the fund is re-loaned by the government or is a refundable subsidy, it shall be treated as a liability.

Chapter V Asset Operation

Article 24

The fund accounts of a financial enterprise shall be managed in a centralized manner and the conditions, power and procedures for the disposition of funds shall be clarified. The disposition of funds shall be managed in accordance with the internal financial management system, shall be subject to the related procedures under a valid contract or lawful voucher. No fund may be deposited or preserved privately.

An outbound disposition of fund shall be subject to the related provisions of the state on the administration of foreign exchange and shall be in line with the corresponding examination and approval.

Article 25

When a financial enterprise manages its cash on hand, gold and silver on hand, and money deposited in the Central Bank and the same items as well, or in other forms of financial currency in cash, it shall satisfy the liquidity requirements and control the total volume of assets in cash.

Article 26

According to its internal financial management system, the contracts shall be examined with financial audit, the fulfillment of contracts shall be tracked, the credits shall be clarified, policies on the collection of receivables shall be worked out and the receivables shall be timely cleared up and settled.

Article 27

Within the scope permitted by the laws and administrative regulations, and upon the resolution of the (general) meeting or of the board of directors, a financial enterprise may make external investments with a currency, as well as in kind, intellectual property, the use right of land and other non-currency properties, of which the value may be assessed in a currency and which may be transferred to others, but it may not make any external investment with a franchise right authorized by the state.

For making an external investment with a non-currency property, an asset assessment institution shall be hired to make an assessment and the value upon assessment and confirmation shall be recorded.

For making an external investment, a written contract shall be signed to clarify the rights and interests it may enjoy from its investment, the investment shall be paid according to its internal financial management system and the fund shall be integrated into the financial budget. It may not be paid under the costs and expenses or under the non-business expenses, the benefits from the investment project shall be timely monitored and evaluated and the responsibilities of the decision-makers and executives shall be specified.

For making an overseas investment, the financial enterprise shall be subject to the related provisions of the state on the examination and approval of overseas investment projects and on the administration of foreign exchange.

Article 28

For accepting, preserving or disposing of a debt offset asset, the work procedures shall be gone through as prescribed by its internal financial management system.

For accepting a debt offset asset, the acceptance price shall be decided and the property right shall be verified.

For preserving a debt offset asset, the financial enterprise shall timely make accounting treatments, regularly implement inspections, and verify the accounting information against the actual information under the principle of being safe, complete and effective.

For disposing of a debt offset asset, an asset assessment institution shall be hired to assess its value under the principle of openness and transparency. Generally, it shall dispose of it by way of public auction. In case it adopts any other way, a competition mechanism shall be introduced to select a buyer of the debt offset asset.

The debt offset asset may not be changed as an asset for self use. In case it is necessary to change a debt offset asset as an asset for self use owing to any objective reason the foresaid asset shall be under the corresponding management after the prescribed procedures have been followed.

Article 29

Under its internal financial management system, a financial enterprise shall regularly check and verify various fixed assets, and clarify responsibilities of use and management thereof.

For purchasing or building an important fixed asset or carrying out an important technological renovation, a feasibility study shall be conducted by the financial enterprise and the decision-making and execution responsibilities shall be determined.

With regard to the depreciation of a fixed asset, the financial enterprise may determine the term for depreciation, select a depreciation approach and make depreciations on quarterly (monthly) basis in light of the trend of industrial development and the technological progress and by taking into consideration the economic life span and the utilization thereof. Once a policy on the depreciation of fixed assets is selected, generally it may not be changed. In case it is actually necessary to change the aforesaid policy, it may be changed upon a resolution made by the (general) meeting of shareholders or by the board of directors. In case the disclosure of the reason for the change is required by any law or administrative regulation, it shall be disclosed timely.

A project under construction, which has been delivered for use and not been subject to final accounts, shall be managed as a fixed asset.

As a financial enterprise engaging in banking businesses, the proportion of the summation of book value of fixed assets and the book value of projects under construction in the net assets may not exceed 40% at most. As a financial enterprise engaging in insurance or other non-banking businesses, the aforesaid proportion may not exceed 50% at most. In case there are otherwise state provisions, such provisions shall prevail.

Article 30

In case a financial enterprise obtains a trademark right, copyright, patent right, know-how or any other intangible asset through self-innovation, purchase or accepting investment, the ownership and the responsibilities of operation and management shall be clarified.

In case the financial enterprise modifies the ownership of an intangible asset, an assessment shall be made and a written contract shall be concluded.

Article 31

The asset losses, which is incurred in a financial enterprise, include the losses of credit assets, bad loans, investments, fixed assets and projects under construction. Such losses of the financial enterprise shall be timely verified, the liabilities shall be made clear, the losses shall be recovered and settled according to the related provisions of the state.

In case a financial enterprise deals with its assets in selling, pledging, replacing, discarding or disposing, it shall be subject to the related laws and regulations of the state and the corresponding procedures shall be followed.

If the disposal of any major fixed asset of the financial enterprise involves the business adjustment or assets restructuring, a plan on the business adjustment or assets restructuring shall be made, and, after it fulfills the prescribed procedures, the plan shall be implemented in accordance with its development strategy and business operation plan.

When a financial enterprise makes external donations, the related laws and regulations shall be complied with. The range and conditions for donations shall be clarified; the execution responsibilities shall be made clear and the formalities for the handover of donation assets shall be strictly carried out.

Chapter VI Costs and Expenses

Article 32

In accordance with its own characteristics and its internal financial management system, a financial enterprise shall intensify the budgetary constraints on the costs and expenses, and the costs and expenses on the basis of all staff members and the whole course shall be managed and controlled.

The costs and expenses of a financial enterprise shall be brought into the in-statement accounting in light of the provisions of the state, and no adjustment with violation of the related provisions shall be made.

Article 33

During the process of business operation, the business operation disbursements that a financial enterprise makes, including disbursements for various interests (including the discount interest) deducting the part which is allowed to be capitalized, handling fees for the procedure, commissions, businesses, business compensations, protection (guarantee, insurance) funds, various provisions for accrued profits and losses, and other related disbursements, shall be brought into the current profits and losses in accordance with the related provisions of the state.

Article 34

For the cost accounting of a financial enterprise shall a strict distinction shall be drawn between the current costs and the costs of the next period, between the cost disbursements and the non-business disbursements, as well as between the revenue disbursements and capital disbursements.

The cost accounting of a financial enterprise shall be computed on a quarterly (monthly) or year basis . During the same calculation period, the beginning and end dates, calculation range and criterions for the computation of costs and business revenues shall be met with each other.

Article 35

The ratio between the expenses and the economic benefits of a financial enterprise shall be laid emphasis on. It shall classify the expenses into categories, manage them level by level, control them through budget, and determine the range, criterions as well as the procedure for the examination and approval of reimbursements of the necessary expenses.

Except for the special accounts as prescribed by the state, only one special account for expenses and deposits of each independent accounting entity of a financial enterprise can be opened. Except for the taxes and surcharges, depreciations, asset amortization, provisions and bad loan losses, the expenses shall be paid from the special account for expenses.

The constraints on expenses of a financial enterprise shall be strengthened. The monitoring of the expenses for business publicity, entertainment, business travels, meetings, communication, maintenance, going abroad, operation of the board of directors, and donations shall be laid emphasis on.

A financial enterprise's expenses for business publicity, entrusting businesses, accident prevention and entertainment shall be all paid upon the actual amount and may not be paid before they are incurred.

Article 36

The operating funds for the technological research and development and for the industrialization of the scientific and technological achievements of a financial enterprise shall be brought into its financial budget and the assets formed thereby shall be managed by incorporating them into the corresponding assets.

Article 37

In light of the related state provisions and in accordance with the employment contracts concluded between it and its employees, the employee salaries or remunerations shall be determined, calculated and paid by the financial enterprise.

According to the related laws, regulations and policies and in light of the resolution of the (general) meeting of shareholders or of the board of directors, a different salary or remuneration measure for the business operator, core technicians and core managers may be adopted.

On the basis of resolution of the (general) meeting of shareholders or of the board of directors, a certain amount shall be arranged by the financial enterprise in the wage plan to award the employees who have made outstanding contributions in the research and development of core technologies, promoting safe operation, developing the market, etc.

Article 38

According to the related laws, regulations and policies, the social insurance premiums of the basic medical insurance, basic old-age insurance, unemployment loss and work-related injury insurance for its employees shall be paid by the financial enterprise and the actual amount shall be included into the costs (expenses).

As a financial enterprise which buys the basic medical insurance and basic old-age insurance and timely pays the premiums in full amount, according to the related laws and regulations, a system of supplementary medical insurances and supplementary old-age insurances (enterprise annuities) for the employees may be established and the related expenses shall be paid under the related provisions of the state if it has the capability of making profits continuously and the capability of make payments.

Article 39

According to the related state provisions, the housing accumulation funds for its employees shall be paid by the financial enterprise and the currency-based distribution of residential houses shall be disposed to its employees.

The operating fund for the labor union shall be distilled at a rate as prescribed by the state and shall be handed over to the labor union.

The operating fund for the employee education shall be distilled at a rate as prescribed by the state and shall be used for employee education and professional training.

Article 40

According to the law, a financial enterprise shall pay the administrative fees, government funds, as well as fees for using or occupying the state-owned resources.

A financial enterprise has the right to refuse to pay any fee lacking the evidences from law, regulation or rule, or exceeding the scope and criterion as prescribed in any law, regulation or rule.

Article 41

The contracts shall be concluded on the necessary commissions and handling fees for business operation of a financial enterprise. The criterions and responsibilities for the disbursements shall be clarified. It may not make any disbursement in cash except for an individual agent.

Chapter VII Proceeds and Distribution

Article 42

The various revenues of a financial enterprise within its scope of business, other business revenues and non-business revenues in its account books shall be uniformly registered and calculated in accordance with the related state provisions. It may not deposit the aforesaid revenues in another entity or make any direct cash payment from such revenues for any reason.

All position-related incomes of an investor, business operator or any other staff member, including business income, and commissions and handling fees paid by the opposite party, belong to the financial enterprise and shall be brought into the in-statement accounting. The aforesaid incomes may not be concealed, moved away, deposited or preserved privately, directly spent in cash, or improperly used for the employees' welfare expenses.

Article 43

They may be recovered with the pre-tax profits of the next year in case the yearly losses incurred to a financial enterprise. The said losses may be recovered year by year if the pre-tax profits are insufficient for recovery. The said losses may be recovered with the profits after the income tax thereon has been paid if the period of continuing recovery exceeds the statutory time limit for pre-tax recovery.

Article 44

The net profits that a financial enterprise realizes in the current year (deducting the recovered losses, below the same) shall be distributed in light of the order of drawing the statutory surplus reserve and general (risk) reserve, and distributing the remaining profits to the investors. Where it is otherwise provided for in any law or administrative regulation, the provisions of this law or administrative regulation shall be followed.

The statutory surplus reserve shall be drawn at 10% of the net profits which are realized in the current year. No more is required to be drawn if the statutory surplus reserve in accumulation reaches 50% of the registered capital.

In case a financial enterprise engages in banking businesses, the general reserve at a certain rate of the balance of the assets bearing the risks and losses shall be drawn by the end of each year so as to recover the possible losses that have not been identified yet. In case a financial enterprise engages in other businesses, the risk reserve shall be drawn from the net profits realized in the current year under the state related provisions so as to recoup the risk losses.

The undistributed profits attributable to the previous year(s) shall be merged into the net profits realized in the current year and shall be distributed to the investors. A stock company shall distribute the said profits in light of the order as follows:

(1)

Paying the dividends of the preferred stocks;

(2)

Drawing the optional surplus accumulation fund;

(3)

Paying the dividends of common stocks; and

(4)

Converting them into capital (stock capital).

Any profit may not be distributed to the investors in case the capital adequacy ratio, solvency adequacy ratio or net-capital-liability ratio fails to meet the requirement as prescribed by the related laws and administrative regulations.

The optional surplus accumulation fund shall be drawn and utilized in light of the articles of association or resolutions of the (general) meeting of shareholders.

By way of the (general) meeting of shareholders making a resolution, the losses may be recovered or the capital may be increased with the statutory surplus accumulation fund and the optional surplus accumulation fund. The remaining part of the statutory surplus accumulation fund may not be less than 25 % of its registered capital prior to the conversion when it converts the statutory surplus accumulation fund into capital.

Article 45

According to the related laws and regulations and upon resolution of the (general) meeting of shareholders, the equity incentives may be given to the business operator, core technicians and core managerial personnel.

Where the business operator and other staff members participate in the distribution of proceeds through labor, technologies, management and other elements, the distribution measures shall be subject to the related laws, regulations and policies. On the basis of resolution of the (general) meeting of shareholders, it shall be treated in light of the different circumstances as follows:

(1)

Those who have obtained equities shall participate in the profit distribution as other investors; or

(2)

The profits distributed to those who have not obtained any equity shall, within the profit limit realized by the related businesses and the criterions for distribution, be listed and paid under the current expenses.

Chapter VIII Restructuring and Liquidation

Article 46

A financial enterprise may be restructured by split-up, merger or other means in accordance with the related laws and regulations.

A financial enterprise to be restructured shall conduct a feasibility study, the prescribed procedures shall be performed, the properties shall be organized to check, an accounting firm shall be hired to conduct an audit, an asset assessment institution shall be hired to make an assessment of assets, the creditors shall be organized to negotiate with, and a plan on the disposal or inheritance of debts, setup of equities and reorganization of assets shall be worked out.

Article 47

The split-up of a financial enterprise shall partition the properties, bear the liabilities and clarify the ownership of the properties after the split-up in accordance with the principle of the pertinence of assets or the pertinence of businesses.

In case any property cannot be partitioned, on the basis of assessment, and after negotiating with all parties concerned, the party owning the property shall make economic compensations to the other parties.

Article 48

Under the conditions of merger of financial enterprises, the credits and debts of all parties to the merger shall be inherited by the financial enterprise surviving after the merger or newly established.

Under the conditions of merger of financial enterprises, the part of net asset value in excess of the registered capital shall be dealt with as the capital reserve. In case the net asset value is less than the registered capital, the registered capital shall be altered or the insufficient part shall be made up by investors.

In case a financial enterprise merges another insolvent financial enterprise by bearing the liabilities of the latter, the merging party shall adopt restructured measures and fulfill the responsibility of repaying the debts according to the merger plan.

Article 49

In case a financial enterprise carries out custody operation business, a custody operation contract shall be concluded to define the financial status of the enterprise in custody, the objectives of custody operation, the power to dispose of the assets in custody, and measures for the distribution of proceeds, etc, and the measures for financial supervision shall be determined and implemented.

In accordance with the custody operation contract, the financial enterprise as the custodian shall make corresponding plans on the reorganization of the properties and debts, adjustment of business, and resettlement of employees of the financial enterprise in custody.

In case it is not stipulated in the custody operation contract and it is not approved by the (general) meeting of shareholders of the financial enterprise in custody, the financial enterprise as the custodian may not reorganize, restructure or transfer the financial enterprise in custody, nor illegally move away any property or business of the financial enterprise in custody, nor provide external guaranties in the name of the financial enterprise in custody or with any property in custody.

Article 50

When restructuring, a financial enterprise shall evaluate the allocated state-owned land the financial enterprise has already occupied according to the related provisions, go through the related formalities and handle it according to the different circumstances as follows:

(1)

In case the land continues to be allocated, it may not be brought into the management as an asset of the enterprise, but the use right and interest of the allocated land shall be determined and clarified, shall be used for the stipulated purpose, and an account book shall be established and record it on the book for future reference;

(2)

In case the land is evaluated and converted into shares, the payable land assignment fee of the financial enterprise shall be transferred into national capital, the state-owned equity formed therefrom shall be held by the entity, which holds the government capital before the reorganization, or by the entity confirmed by the competent authority of finance;

(3)

In case the land is assigned, the land use right shall be purchased and the assignment fee shall be paid; or

(4)

In case the land is leased, the financial enterprise shall use it by leasing , the rent shall be determined by referring to the loan interest rate of the banks at the same period and shall be stipulated in the lease contract.

When the reorganization begins, the franchise right and other state-owned resources that have already been occupied by the financial enterprise shall be handled by referring to the preceding paragraph if such resources are transferable according to law.

Article 51

The wages and subsidies for medial treatment and disability, comfort and compensatory expenses, basic social insurance premiums, housing accumulation fund, labor union operating fund defaulted by the enterprise, during the process of restructuring of a financial enterprise, shall be paid off in priority with the existing assets of the financial enterprise.

Article 52

In case a financial enterprise is ordered to close down, goes bankrupt in light of law, terminates its operations or is dissolved owing to the expiration of its term of operation, a liquidation shall be conducted according to the related laws, administrative regulations and the articles of association of the financial enterprise.

In case the financial enterprise, on its own initiative, is to perform the liquidation, it shall be done after a resolution is made by the (general) meeting of shareholders of the financial enterprise.

In case the financial enterprise is to perform the liquidation in accordance with law, its non-currency assets shall be assessed.

Article 53

The debts of the financial enterprise shall be settled in light of the order as prescribed by the related laws and administrative regulations after the liquidation expenses have been paid out of the financial enterprise's properties liquidated.

Article 54

After the financial enterprise has completed the liquidation, a liquidation report shall be written and an accounting firm shall be hired to conduct an audit. The liquidation report and audit report shall be submitted to the investors for a resolution or to the people's court for confirmation. The related departments, creditors and other interested parties of the related information shall be notified after resolution of the investors or upon confirmation of the people's court.

Article 55

After a financial enterprise cancels its labor contract with any employee, economic compensations shall be given to the employee under the related provisions of the state. The aforesaid economic compensations shall be handled in accordance with the following different circumstances except for those occurring during the normal operation and thus shall be listed into the current expenses:

(1)

during the reorganization, those fees shall be paid from the undistributed profits, surplus reserves, capital reserves and paid-in capital in turn; or

(2)

during the liquidation, those fees shall be paid off in priority with the liquidated properties of the enterprise after deducting the liquidation expenses.

Chapter IX Financial Information

Article 56

On the basis of computer-aided accounting, an information processing system that integrates finance and business shall be established, and the once-for-all handling and real time sharing of the related information on finance and business shall be gradually realized.

Article 57

According to the related laws and administrative regulations, the interim financial statements and annual financial statements as required by the Ministry of Finance shall be written, and carry out an internal audit, and, within in the period as required, submit them to the finance department and other related users. The disclosure of financial information may not be refused or delayed.

Article 58

The annual financial statements filed by a financial enterprise shall be audited by an accounting firm.

The financial enterprise may not write or provide to the public any financial information, which is false or conceals any important fact.

The person-in-charge of a financial enterprise shall take charge of the genuineness and completeness of the financial information of this financial enterprise.

Article 59

A sound financial evaluation system for financial enterprises shall be established by a financial enterprise so as to evaluate their capital adequacy, solvency, asset quality, profit, and social contributions. The evaluation result shall be considered as the evidences for the formulation of financial management policies and for the evaluation of the financial enterprise.

A financial enterprise shall summarize, assess and evaluate its financial status and business outcomes in light of its financial evaluation system.

Article 60

The obligation of confidentiality shall be performed by the finance department and its functionaries. The financial information submitted by financial enterprises shall be prudently and lawfully preserved and used. None of them may seek benefits or impair the interests of any financial enterprise by making use of any financial information that has not been disclosed publicly.

Chapter X Penalty Rules

Article 61

If any financial enterprise is under any of the circumstances as follows, it shall be ordered to make a correction by the finance department within the time limit or circulated for criticism:

(1)

To violate the relevant provisions on the submission of establishment or modification document;

(2)

To violate the relevant provisions on the control of financial risks;

(3)

To violate the relevant provisions on raising and using the funds;

(4)

To violate the relevant provisions on opening and management of fund accounts;

(5)

To form any off-account assets by violating the asset management provisions;

(6)

To violate the relevant provisions on business operation costs or expenses;

(7)

To violate the relevant provisions on the determination of business proceeds;

(8)

To violate the relevant provision on making the impairment provision, retaining the reserves or distributing the profits;

(9)

To violate the relevant provisions on disposal of fiscal funds and state-owned resources;

(10)

To violate the relevant provisions on the order of settlement of debts or disposal of properties;

(11)

To violate the relevant provisions on the social insurance premiums and economic compensations to employees; or

(12)

To violate other relevant provisions on the financial management of financial enterprises.

Article 62

If any financial enterprise is under any of the following circumstances, it shall be ordered to make a correction within a time limit, and the financial enterprise, the person-in-charge and other directly liable persons shall be given a warning:

(1)

Failing to establish an internal financing management system according to the law or regulations;

(2)

An internal financial management system has been established by obviously violating the laws, regulations, and the uniform financial management rules, and fails to make revisions as required by the finance department;

(3)

Failing to provide any financial information as prescribed; or

(4)

Refusing or hampering the financial supervision according to law.

Article 63

In case any financial enterprise violates these Rules and any law or regulation provides otherwise, it shall be dealt with or punished according to such law or regulation.

In the process of financial supervision, a finance department shall transfer the relevant items which do not belong to the scope of its functions to the relevant administrative departments.

Article 64

In case any functionary of a finance department abuses his power, neglects his duties, seeks private benefits, or divulges any state secret or commercial secret in the process of performing the duties, he shall be punished according to the law.

Chapter XI Supplementary Rules

Article 65

According to these Rules and other provisions of the Ministry of Finance and combining with the actual circumstances of the financial institutions located within their respective administrative area, the finance departments of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan may constitute detailed implementation measures and report them to the Ministry of Finance for archival filing.

Article 66

These Rules shall enter into force as of the day of January 1, 2007. The Financial Rules for Financial and Insurance Enterprises ( Cai Shang Zi [93] No.11 ), Financial Rules for Insurance Companies (Cai Zhai Zi [1999] No. 8), Financial Rules for Securities Companies (Cai Zhai Zi [1999] No. 215), and Financial Rules for Financial Asset Management Companies (for Trial Implementation) (Cai Jin [2000] No. 17) shall be concurrently repealed.