Laws of the People's Republic of China

Interpretation of the Relevant Matters of the Supplementary Provisions No.2 to the Provisions on Foreign Investment in the Civil Aviation Industry

I.

The Background and Content of the Supplementary Provisions No.2 to the Provisions on Foreign Investment in the Civil Aviation Industry

In order to implement the Supplementary Agreement No.2 on Mainland and Hong Kong Closer Economic Partnership Arrangement signed in October 2005 and the Supplementary Provisions No.3 signed in June 2006, Civil Aviation Administration of China combined the provisions concerning the relaxation of restrictions in civil aviation industry in the two Supplementary Provisions and thus formulated the Supplementary Provisions No.2.

The Supplementary Provisions No.2 enlarges the scale of investment of Hong Kong and Macao service providers in establishing air transport sales agencies. Hong Kong and Macao service providers may hold the controlling shares in joint ventures and cooperative businesses or establish solely funded enterprises.

II.

Application

Mainland and Hong Kong Closer Economic Partnership Arrangement has provided a clear definition of Hong Kong and Macao service providers, which specifies such judging criteria as profit and tax, time limit of operating, place of business and employees, etc. The businesses Hong Kong and Macao service providers run in Mainland shall be of the same nature with and within the actual business scope of those they run in Hong Kong and Macao. Therefore, Hong Kong and Macao service providers who suit the Supplementary Provisions No.2 shall be air transport sales agencies.

The Supplementary Provisions No.2 is applicable only to Hong Kong and Macao service providers who invest in and establish air transport sales agencies in Mainland. Those with investment from a third party apart from Hong Kong and Macao service providers suit other provisions instead of the Supplementary Provisions No.2.

III.

The Departments in Charge and Relevant Regulations and Provisions

The qualification authentication of sales agent has been transferred from the General Administration of Civil Aviation of China to China Air Transport Association, which is responsible for the qualification authentication of national civil air transport sales agency.

Other regulations and provisions related to civil air transport sales agencies include Provisions for the Administration of Civil Air Transport Sales Agencies (No.37) and Measures for Qualification Authentication of China Civil Air Transport Sales Agency issued by China Air Transport Association.

IV.

Business Scope

The business scope of air transport sales agencies established in accordance with the Supplementary Provisions No.2 include: class I air transport sales agency, referring to sales agencies dealing in business of international routes or routes in Hong Kong, Macao and Taiwan area, and class II air transport, referring to those dealing in domestic routes, Hong Kong, Macao and Taiwan not included.

V.

Registered Capital

The air transport sales agencies established in accordance with the Supplementary Provisions No.2 shall meet the same standards in registered capital with agencies in the Mainland. Those dealing in the class I air transport sales agency shall have no less than 1.5 million RMB as the registered capital and those dealing in the class II, no less than 500 thousand RMB. Sales agents shall increase their registered capital by 500 thousand RMB for every newly set branch agency or business outlet.

VI.

Credentials of Financial Guarantee

Credentials of financial guarantee required in applying for Qualification Certificate of Civil Air Transport Sales Agency refer to the attestation, which is provided by the applying agency, of financial guarantee from a third party, which shall be a domestically-funded enterprise with its registered capital equal to, if not higher than, the agency being guaranteed.

Department of Policy and Regulation of General Administration of Civil Aviation of China

February 6, 2007