Laws of the People's Republic of China

China Insurance Regulatory Commission

Order of China Insurance Regulatory Commission

No.9

The Interim Measures for the Control of Overseas Use of Insurance-related Foreign Exchange Funds as formulated jointly by China Insurance Regulatory Commission and the People's Bank of China are hereby promulgated and shall be implemented as of the date of promulgation.

Wu Dingfu, Chairman of China Insurance Regulatory Commission

Zhou Xiaochuan, President of the People's Bank of China

August 9th, 2004

Interim Measures for the Control of Overseas Use of Insurance-related Foreign Exchange Funds

Chapter I General Provisions

Article 1

With a view to strengthening the control of overseas use of insurance-related funds, preventing risks and safeguarding the interests of the insured, these Measures are formulated in conformity with the Insurance Law of the People's Republic of China, Regulations of the People's Republic of China on Foreign Exchange Control and other pertinent laws and regulations.

Article 2

An insurance company mentioned in the present Measures refers to a Chinese capital insurance company, foreign capital insurance company, Chinese-foreign joint venture insurance company or a branch of any foreign insurance company, set up with the approval of China Insurance Regulatory Commission (hereinafter referred to as CIRC) and registered according to the law in the People's Republic of China.

The insurance-related foreign exchange fund as mentioned in the present Measures refers to the sum of capital, public reserve fund, undistributed profits, various reserves and guarantee deposits received in foreign currencies of an insurance company.

Article 3

In the overseas use of its foreign exchange fund, the insurance company shall follow the principles of security, liquidity and profitability and be prudent in making investment and shall operate independently at its own risk.

Article 4

In the overseas use of its foreign exchange fund, the insurance company shall accord with the present Measures and other laws and regulations concerning insurance and foreign exchange control, as well as the pertinent foreign laws and regulations.

Article 5

CIRC and the State Administration of Foreign Exchange (hereinafter referred to as SAFE) shall carry out supervision over and control of the overseas use of insurance-related foreign exchange funds.

Chapter II Qualification Requirements

Article 6

An insurance company engaging in overseas use of its foreign exchange fund shall fulfill the following requirements:

(1)

possessing a license for engaging in foreign exchange;

(2)

its total assets at the end of the previous year being not less than RMB5 billion yuan;

(3)

its foreign exchange fund at the end of the previous year being not less than US$15 million or its equivalent in other freely convertible currencies;

(4)

its solvency margin conforming to the pertinent provisions of CIRC;

(5)

possessing a professional fund use department or a pertinent insurance asset management company;

(6)

its internal management system and risk control system conforming to the provisions of the Guidelines for Risk Control in the Use of Insurance Funds;

(7)

the number of its professional and managerial personnel with at least two years of experience in overseas investment conforming to the pertinent provisions; and

(8)

other requirements as may be provided by CIRC and SAFE.

Article 7

In terms of the overseas use of its foreign exchange fund, the insurance company shall, within the amount of its foreign exchange balance at the previous yearend, apply to SAFE for foreign exchange remittance and payment for investment outside China by submitting the following documents and materials in triplicate:

(1)

a written application containing at least the background of the applicant, the amount of foreign exchange applied for to be paid for investment and the investment plan;

(2)

its financial statements and balance sheet in foreign currencies at the previous yearend as audited by an accounting firm;

(3)

reports on its solvency positions at the end of last year and at the end of last quarter as audited by an accounting firm and notes to such reports;

(4)

a brief of its internal professional fund use department or of pertinent insurance asset management company;

(5)

its internal management system and risk control system;

(6)

resumes of its professionals engaging in overseas investment;

(7)

materials concerning its domestic custodian and the draft custody agreement;

(8)

materials concerning its external trustee and the draft asset management entrustment agreement, if it has an external trustee; and

(9)

other materials as prescribed by CIRC and SAFE.The SAFE shall make a decision as whether or not to approve the application within 20 days as of the receipt of all necessary application documents. In the case of approval, the amount of foreign exchange payment for investment as approved shall be notified in writing to the applicant; in the case of disapproval, such disapproval shall be notified in writing to the applicant with reasons stated. A copy of such decision for either approval or disapproval shall also be sent to CIRC.

Article 8

When its foreign exchange fund increases due to its capital increase or shares expansion or overseas listing, the insurance company may apply to the SAFE for an increase of the specified amount of foreign exchange payment for investment for the current year by submitting to the SAFE the pertinent documents and materials.The SAFE shall make a decision in conformity with Article 7 of the present Measures.

Chapter III Investment Scope and Proportion

Article 9

The overseas use of insurance-related foreign exchange funds shall be limited to the following investment types and instruments:

(1)

bank deposits;

(2)

bonds of a foreign government, international financial organization or foreign company;

(3)

bonds issued outside China by the Chinese government or a Chinese enterprise;

(4)

money market derivatives, such as bank's bills and large negotiable certificates of deposit; and

(5)

other investment types and instruments within the scope specified by the State Council.

The ˇ°bankˇ± as referred to in item (1) of the preceding paragraph means either an external branch of a Chinese capital commercial bank or a foreign bank with at least grade A or its equivalent of long-term credit as assessed by an internationally accepted rating agency for the past three years.

The ˇ°bondˇ± as referred to in item (2) of the preceding paragraph means that of at least grade A or its equivalent as assessed by an internationally accepted rating agency.

The ˇ°money market derivativesˇ± as referred to in item (4) of the preceding paragraph mean money market fixed income derivatives of at least grade AAA or its equivalent as assessed by an internationally accepted rating agency.

Article 10

Any overseas use of insurance-related foreign exchange fund shall accord with the proportions as follows:

(1)

the total amount of the insurance company that may be used in investment may not be more than 80% of its foreign exchange balance at the end of last year or, in the case of any circumstances under Article 8 herein, it may not be more than 80% of the sum of its foreign exchange balance at the end of last year and the increased fund;

(2)

the actual total amount of investment of the insurance company may not be more than the amount of foreign exchange payment for investment as approved by the SAFE;

(3)

the insurance company's deposit in one bank may not be more than 30% of the amount of foreign exchange payment for investment as approved by the SAFE, however, the balance in the account for settlement of overseas use of foreign exchange fund shall not be subject to this limit;

(4)

the balance of all bonds of grade A of credit that the insurance company invested in, apart from those issued overseas by the Chinese government or a Chinese enterprise, as calculated at their cost prices, may not be more than 30% of the amount of foreign exchange payment for investment as approved by the SAFE;

(5)

the balance of all bonds below grade AA of credit that the insurance company invested in, apart from those issued overseas by the Chinese government or a Chinese enterprise, as calculated at their cost prices, may not be more than 70% of the amount of foreign exchange payment for investment as approved by the SAFE;

(6)

the balance of bonds issued by one company or enterprise, which the insurance company invested in, as calculated at their cost prices, may not be more than 10% of the amount of foreign exchange payment for investment as approved by the SAFE; and

(7)

the balance of bonds issued overseas by the Chinese government or Chinese enterprises, which the insurance company invested in, as calculated at their cost prices, may not be more than the amount of foreign exchange payment for investment as approved by the SAFE.

Chapter IV Investment Management

Article 11

In terms of overseas use of its insurance-related foreign exchange fund, the head office of the insurance company shall carry out a unified strategic allocation of assets, and the internal professional fund use department or the pertinent insurance asset management company shall be in charge of the operation and management.

No branch of an insurance company may undertake any overseas use of foreign exchange fund.

Article 12

Any overseas use of insurance-related foreign exchange fund must be made in conformity with the Guideline for Risk Control in the Use of Insurance Funds and under a well-established risk control system.

The risk control system shall at least contain the investment decision-making procedure, investment authorization system, research and reporting system, and risk assessment and performance appraisal index systems.

Article 13

In the overseas use of its foreign exchange fund, an insurance company may entrust the investment management to an external professional investment institution satisfying the requirements prescribed in Article 14 herein.

Article 14

The external professional investment institution to which an insurance company entrust its investment management must fulfill the following requirements:

(1)

being allowed to engage in asset management business according to the law of the country or district concerned;

(2)

its risk control index conforming to the pertinent provisions of the regulatory authority of the country or district concerned;

(3)

both its paid-in capital and net assets being not less than US$60 million respectively or its equivalent in other freely convertible currencies, and the assets under its management being not less than US$50 billion or its equivalent in other freely convertible currencies;

(4)

possessing a sound corporate governance structure and well-established internal management system and risk control mechanism, and having no record of any major illegal or irregular act in the country or district concerned in the past three years;

(5)

having at least ten years of experience in international asset management business, and having professional investment personnel of a corresponding number;

(6)

committing in writing to a promise that, if necessary, it shall, at the request of CIRC, provide the exact state of transactions relating to the overseas use of insurance-related foreign exchange fund;

(7)

the country or district concerned having a well-defined financial regulatory system, and there being a memorandum of understanding concerning regulatory cooperation and effective regulatory cooperation relations between financial regulatory authority of the country or district concerned and the Chinese financial regulatory authority; and

(8)

other requirements for prudence as prescribed by CIRC.The provisions concerning professional investment institutions established overseas by domestic financial institutions, to which the management of insurance-related foreign exchange fund is entrusted, shall be separately formulated by CIRC.

Article 15

When an insurance company entrusts its investment management to an external trustee, its internal professional fund use department or related insurance asset management company shall be in charge of the delegation matters, and appraise the risk level of the trusted assets, investment performance and management ability of the external trustee.

When selecting an external trustee for the management of insurance-related foreign exchange fund, the risk of management shall be fully taken into consideration, and the foreign exchange fund under trusteeship management shall be decentralized properly.

Article 16

In the overseas use of its insurance-related foreign exchange fund, an insurance company shall lay stress on that the use matches its liabilities in foreign exchange in terms of term structures and currency structures.

When undertaking overseas use of its insurance-related foreign exchange fund, the insurance company shall give priority to the bonds issued overseas by the Chinese government and Chinese enterprises.

Chapter V Asset Custody

Article 17

In the overseas use of its foreign exchange fund, an insurance company shall entrust the custody of all its assets used overseas to a domestic commercial bank.

The ˇ°commercial bankˇ± as in the preceding paragraph means any Chinese capital bank, branch of a foreign bank, Chinese-foreign joint venture bank or foreign capital bank in the territory of China.

Article 18

A commercial bank to be a domestic custodian of an insurance company shall fulfill the following requirements:

(1)

having been a designated foreign exchange bank for more than three years;

(2)

its paid-in capital being not less than RMB8 billion yuan, of which, there must be foreign exchange capital in freely convertible currencies at the value of RMB1 billion yuan for a Chinese capital bank; the paid-in capital of the branch of a foreign bank shall be calculated in light of its head office;

(3)

having obtained qualifications for domestic securities investment fund custody business;

(4)

having a sound corporate governance structure and well-established internal management system and risk control system;

(5)

having a special custody department and personnel of corresponding number who are familiar with global custody business;

(6)

having a safe and efficient clearing and settlement system and emergency mechanism;

(7)

having no record of any major illegal or irregular act, and neither the head office nor the branch having been heavily punished by the regulatory authority of the country or district concerned, in the past three years; and

(8)

other requirements as prescribed by CIRC and SAFE.

The branch of a foreign bank shall not be subject to item (3) of the preceding paragraph, on condition that its head office has a custody scale of at least US$100 billion.

Article 19

The domestic custodian of an insurance company shall perform the following obligations:

(1)

to manage the foreign exchange fund and securities entrusted by the insurance company;

(2)

to open a domestic custody account, external foreign exchange use settlement account and securities custody account in respect of insurance-related foreign exchange fund;

(3)

to conduct outward and inward remittance of foreign exchange fund and the pertinent exchange formalities;

(4)

to supervise the overseas investment operation by the insurance company, insurance asset management company and external trustee, jointly with the external custody agent;

(5)

to promptly notify the insurance company of any illegal or irregular investment directions whenever they find any;

(6)

to supervise the external custody agent and make sure that the insurance-related foreign exchange fund is in safe custody;

(7)

to keep for at least 15 years the records, vouchers and other pertinent materials of inward and outward remittance and transactions of foreign exchange fund and transactions of securities;

(8)

to conduct the declarations for statistics of the international balance of payment in conformity with such provisions as the Measures for Declarations for Statistics of International Balance of Payment, Operation Rules for Financial Institutions' Handling Declarations for Statistics of International Balance of Payment, and Operation Rules for Financial Institutions' Handling Declarations of External Asset Balance and Profit and Loss;

(9)

to assist CIRC and SAFE in inspecting the overseas use of insurance-related foreign exchange funds; and

(10)

other obligations as prescribed by CIRC and SAFE.

Article 20

The domestic custodian of an insurance company shall submit the pertinent reports pursuant to the following provisions:

(1)

a report on the opening of the insurance company's domestic custody account, external foreign exchange use settlement account and securities custody account shall be made to CIRC and SAFE within five days as of the day when they are opened;

(2)

a report on the insurance company's outward remittance of principal and inward remittance of principal and earnings shall be made to SAFE with a copy thereof to CIRC within two days as of the day of remittance;

(3)

a report on the receipt and payment in the domestic custody account of the insurance company shall be made to CIRC and SAFE within five days from the end of each month;

(4)

a statement of the overseas use of insurance-related foreign exchange fund shall be submitted to CIRC and SAFE within ten days as of the end of each quarter;

(5)

a statement of the overseas use of foreign exchange fund of the insurance company for the last year shall be submitted to CIRC and SAFE within one month as of the end of each fiscal year;

(6)

it shall promptly report to CIRC and SAFE any illegal or irregular investment directions of the insurance company, insurance asset management company or external trustee whenever it finds them; and

(7)

it shall report other matters to CIRC and SAFE as prescribed by them.

Article 21

After receiving the approval document from SAFE for the amount of foreign exchange payment for investment, an insurance company shall conclude a custody agreement with the domestic custodian by producing such approval document, and open a domestic custody account.

Article 22

The insurance company shall submit the following documents to CIRC and SAFE within five days as of the opening of its domestic custody account:

(1)

a copy of the custody agreement; and

(2)

a written commitment of the domestic custodian that it shall, pursuant to the pertinent provisions, supervise the use by the insurance company of its domestic custody account, external foreign exchange use settlement account and securities custody account.

The custody agreement must state the obligations of the domestic custodian as prescribed in Articles 19 and 20 herein. The insurance company is entitled to terminate the agreement earlier if, in the case of any violation by the domestic custodian of the said obligations, CIRC or SAFE requires the insurance company to replace the domestic custodian with another one.

Article 23

The following funds fall with the receipts of the domestic custody account of an insurance company:

(1)

foreign exchange fund transferred to the account by the insurance company;

(2)

insurance-related foreign exchange fund remitted to the account from overseas;

(3)

bank deposit principal and interest income;

(4)

interest income from bonds and revenue from sale of bonds;

(5)

interest income from money market derivatives and revenue from the sale thereof; and

(6)

other receipts.

Article 24

The following expenditures fall within the payment of the domestic custody account of an insurance company:

(1)

fund transferred to the external foreign exchange use settlement account;

(2)

insurance-related foreign exchange fund remitted back to the insurance company;

(3)

bank deposit;

(4)

cost paid for the purchase of bonds, including tax payment, such as stamp tax and capital gains tax;

(5)

currency exchange fee, custody fee and asset management fee;

(6)

various service charges; and

(7)

other expenditures.

Article 25

Any overseas commercial bank chosen by a domestic custodian to be its external custody agent shall fulfill the requirements concluded in the custody agreement.

The domestic custodian shall open an external foreign exchange use settlement account and a securities custody account in respect of the insurance-related foreign exchange fund with its external custody agent for fund settlement and securities custody business.

Article 26

The domestic custodian shall choose an overseas commercial bank satisfying the following requirements as its external custody agent:

(1)

its paid-in capital being not less than US$2.5 billion or its equivalent in other freely convertible currencies;

(2)

having been of at least grade A or its equivalent of long-term credit as assessed by an internationally accepted rating agency for the past three years;

(3)

being qualified for a custodian as determined by the regulatory authority of the country or district concerned, or having cooperative relations with the domestic custodian;

(4)

having a sound corporate governance structure and well-established internal management system and risk control mechanism;

(5)

having a special custody department and personnel of corresponding number who are familiar with the custody business in the country or district concerned;

(6)

having a safe and efficient clearing and settlement system and emergency mechanism;

(7)

having no record of any heavy punishment in the country or district concerned in the past three years;

(8)

the country or district concerned having a well-defined financial regulatory system, and there being a memorandum of understanding regarding regulatory cooperation and effective regulatory cooperation relations between the financial regulatory authority of the country or district concerned and the Chinese financial regulatory authority; and

(9)

other requirements for prudence as prescribed by CIRC and SAFE.

Article 27

The insurance company's domestic custodian and its external custody agent shall strictly separate their own assets from those under trust, and set up accounts respectively for, and make separate management of, the overseas use of foreign exchange fund of each insurance company.

Chapter VI Supervision and Management

Article 28

SAFE may adjust the approved amount of overseas use of insurance-related foreign exchange fund for investment in light of the overall state of international balance of payment.

Article 29

Any overseas use of foreign exchange fund by an insurance company shall be limited to the provisions of Articles 9 and 10 herein, and the insurance company may not commit any of the following acts:

(1)

granting a loan to or providing guarantee for others;

(2)

money laundering;

(3)

conspiring with its external trustee, domestic custodian and external custody agent to obtain illegal gains; or

(4)

other acts as prohibited by the pertinent laws or provisions of China or any other country or district concerned.

Article 30

When concluding a pertinent agreement respectively with its external trustee and domestic custodian, an insurance company shall expressly require the external trustee and domestic custodian to promptly provide the related statements and relevant materials to CIRC and SAFE.

Article 31

CIRC and SAFE may require the insurance company and its domestic custodian to provide the materials concerning the overseas use of insurance-related foreign exchange fund and, if necessary, conduct on- site inspection on the insurance company or entrust such inspection to a professional agency.

Article 32

No overseas commercial bank entrusted with the management of insurance-related foreign exchange fund may concurrently be the domestic custodian or external custody agent.

Article 33

If any of the following circumstances occurs, the insurance company shall report it to SAFE within five days as of the occurrence:

(1)

any change of its external trustee, domestic custodian or external custody agent;

(2)

any significant change in its registered capital and shareholding structure;

(3)

being involved in any major litigation, subject to any heavy punishment or any other serious matters; and

(4)

other circumstances as prescribed by SAFE.

The insurance company shall also report the occurrence of circumstances under items (1) and (3) of the preceding paragraph to CIRC.

Article 34

If any of the following circumstances occurs, the insurance company's domestic custodian shall report it to CIRC and SAFE within five days as of the occurrence:

(1)

any significant change in its registered capital and shareholding structure;

(2)

being involved in any major litigation or subject to any heavy punishment; and

(3)

other matters as prescribed by CIRC and SAFE.

Article 35

Any insurance company and its domestic custodian in violation of the present Measures or any other provisions concerning insurance and foreign exchange control shall be given by the pertinent regulatory authorities administrative penalties according to their respective authorities and regulatory functions.

In the case of any gross violation by an insurance company of the present Measures, CIRC may limit the company's scope of business, order the company to cease accepting new business or revoke the company's license for insurance business.

In the case of any gross violation by the domestic custodian of the present Measures, CIRC may order the insurance company to replace the domestic custodian.

Article 36

If the external trustee entrusted with the management of insurance-related foreign exchange fund breached the pertinent provisions, CIRC and SAFE may require the insurance company to replace such external trustee.

Chapter VII Supplementary Provisions

Article 37

For the materials submitted to CIRC and SAFE under the present Measures, those in Chinese shall be regarded as the authentic ones.

Article 38

The use by an insurance company of foreign exchange fund in Hong Kong Special Administrative Region and Macao Special Administrative Region shall be carried out by following the pertinent provisions of the present Measures.

Article 39

The overseas use of foreign exchange fund by an insurance management company shall be carried out by following the present Measures.

Article 40

In the present Measures, ˇ°dayˇ± means a working day not including any festival or holiday.

Article 41

The power of interpretation of the present Measures shall be vested in CIRC and the People's Bank of China.

Article 42

The present Measures shall be implemented as of the date of promulgation.