Laws of the People's Republic of China

The People's Bank of China

Interim Provisions for Administering Business Operations of Foreign-capital Banks and Chinese-foreign Equity Joint Banks in Special Economic Zones

the People's Bank of China

June 17, 1987

Pursuant to the Regulations Governing Foreign-capital Banks and Chinese-foreign Equity Joint Banks in Special Economic Zones of the People's Republic of China these Provisions are hereby set forth with a view to strengthening and improving the administration of business activities of foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks in special economic zones as well as promoting the development of their business.

Article 1

Operating Funds and Registered Capital

1.

Any branch of a foreign-capital bank shall, within 30 days after receipt of the approval from the People's Bank of China, submit to the latter's local branch in the special economic zone(hereinafter referred to as the SEZ branch) a certificate which evidences an allocation by its head office of an amount of foreign exchange equivalent to Renminbi 40 million yuan as its operating funds and which is testified by accountants registered in the People's Republic of China and accepted by the SEZ branch. The SEZ branch shall, in the light of specific conditions, decide whether the operating funds should be transferred into China once for all or by installments, or deposited with any bank outside China. The branch of the foreign-capital bank may apply to the SEZ branch for retransferring outside China the operating funds transferred into China before.

2.

Any foreign-capital bank or Chinese-foreign equity joint bank shall, within 30 days after receipt of the approval from the People's Bank of China, deposit with the SEZ branch an amount of paid-up capital no less than 50% of its registered capital. The SEZ branch shall pay interest thereon according to relevant provisions. This portion of capital shall not be transferred outside China without the approval of the SEZ branch. Any foreign bank or Chinese-foreign equity joint bank shall, before having paid the registered capital in full, set aside from each year's after-tax profits funds no less than 20% of them ad a reserve fund.

Article 2

Deposits

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may handle Renminbi and foreign currency deposits within the following scope:

1.

Foreign currency deposits

(1)

Interbank deposits in and outside China;

(2)

Deposits by undertakings, enterprises, social organizations and individuals in foreign countries and the Hongkong and Macao regions;

(3)

Deposits by overseas Chinese enterprises, foreign-capital enterprises, Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures (hereinafter referred to as foreign investment enterprises), foreign embassies and commercial offices, offices of international organizations, offices of foreign news agencies and representative offices of foreign industrial and commercial enterprises, foreign nationals, overseas Chinese and Hongkong and Macao compatriots working in the above organs;

(4)

Deposits by foreign nationals, overseas Chinese, Hongkong and Macao compatriots coming to China for a short stay, and foreign experts, staff members and workers, foreign students and trainees;

(5)

Deposits of the unused portion of foreign currency loans received from foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks by state and collective enterprise or other authorized organs.

2.

Renminbi Deposits

(1)

Deposits by foreign investment enterprise;

(2)

Deposits of the unused portion of Renminbi loans received from foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks by state and collective enterprises or other authorized organs;

(3)

Interbank deposits within China with the sources limited to the Renminbi funds as prescribed in sub-sections (1) and (2) above.

3.

Other Renminbi and foreign currency deposits approved by SEZ branches.

Article 3

Deposit Reserve

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks handling place with local SEZ branches reserve funds, which may be in terms of the Hongkong dollar or the U.S. dollar and shall be interest free.

The ratio of the foreign currency reserve shall be set and adjusted by the SEZ branch. The formula for calculating the reserve is: the monthly average balance of total foreign currency deposits (the monthly average balance is the result of the accumulated amount from the first day to the last day of the month divided by the days of the month) multiplied by the ratio of deposit reserve.

The ratio of the Renminbi deposit reserve shall be worked out in the same way as that of the foreign currency reserve.

Article 4

Loans

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may handle Renminbi and foreign currency loans within the following scope:

1.

Foreign Currency Loans

(1)

interbank loans in and outside China;

(2)

loans to foreign investment enterprises;

(3)

loans to state and collective enterprises;

(4)

loans to Chinese-capital enterprises outside China, Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and enterprises without Chinese capital.

2.

Renminbi Loans

(1)

interbank loans within China with the sources limited to such deposits as prescribed in sub-sections (1) and (2) of Article 2 ;

(2)

loans to foreign investment enterprises;

(3)

loans to state and collective enterprises with the sources exclusively limited to Renminbi funds supplementary to their foreign currency loans.

The total of foreign currency loans granted by a foreign bank or Chinese-foreign equity joint bank to an enterprise in or outside China plus amounts of foreign exchange guarantees in the borrowers' favor shall not exceed 30% of the aggregate amount of its paid-up capital plus the reserve therefor.

Article 5

Investment

If a foreign-capital bank or Chinese-foreign equity joint bank buys foreign currency bonds and stocks issued by enterprises in and outside China, the total amount shall not exceed 30% of its paid up capital plus the reserve therefor. There is however no such a limit to its purchase of foreign currency bonds issued by Chinese financial institutions.

Article 6

Guarantees

The accumulated amount of foreign exchange guarantees issued by any foreign-capital bank or Chinese-foreign equity joint bank plus its foreign exchange liabilities shall not be over 20 times of the total of its paid-up capital plus the reserve therefor.

Article 7

The Ratio of Liquid Assets

The liquid assets of any foreign-capital bank or Chinese-foreign equity joint bank shall be maintained at over 25% of the total of its deposits and shall include cash, gold balance of deposits with the SEZ branch, deposits with other banks, bonds of below three months issued by foreign governments.

Article 8

Remittances

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may handle the following remittances in foreign exchange:

1.

Inward Remittances

All remittance orders received from foreign countries or the Hongkong and Macao regions shall duly be honored according to the following provisions:

(1)

If the remittee is a state, collective or individual enterprise, a governmental establishment or a resident in China, the foreign funds of the remittance shall after settlement be transferred to the SEZ branch according to the regulations;

(2)

If the remittee is a foreign investment enterprise, embassy, or commercial office, an office of any international organization, or foreign news agency, a foreign financial institution, representative office of an industrial or commercial enterprise in China, or a foreign national, overseas Chinese, Hongkong or Macao compatriot working for any of the above organs or coming to China for a short stay, the remittee has the discretion to deposit the proceeds of the remittance (including foreign exchange certificate) or exchange them for Renminbi. The foreign exchange funds received by the payee bank shall be transferred to the SEZ branch if they are converted into Renminbi.

2.

Outward Remittances

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may effect all payments for foreign investment enterprises in connection with their normal business(including payments for imported goods, freights and insurance premiums, commissions, advertising expenses, trademark registration fees, the principal and interest of foreign currency loans, charges for technology transfer, etc.), and may remit such payments abroad directly against the payment instruments received from the remitting enterprises. The following three kinds of outward remittances are subject to prior application to the SEZ branch of the State Administration of Exchange Control.

(1)

outward remittances for transferring capital out of China;

(2)

outward remittances of the foreign exchange funds possessed by the foreign partners after the wingding up and liquidation of a foreign investment enterprise according to law;

(3)

outward remittances of their salaries and other lawful incomes by staff members and workers from foreign countries and the Hongkong and Macao regions.

Article 9

Trade Settlement

Foreign banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may handle the settlement of import and export transactions within the following scope:

1.

Export: settlement of accounts receivable, negotiation and collection of documentary bills drawn by foreign investment enterprises ad well ad state and collective enterprises authorized to engage in import and export trade.

2.

Import: settlement of accounts payable, negotiation and collection of documentary bills drown on foreign investment enterprises. As for state and collective enterprises, it is only limited to such items as are connected with the bank's foreign currency loans to them.

The procedures for handling the aforesaid settlement, documentary bills and collections under import and export transactions, for transferring foreign exchange earnings on export and for approving the use of foreign exchange for import shall be subject to the regulations concerning the control over trade related foreign exchange revenues and expenditures or other provisions concerned as formulated by the State Administration of Exchange Control.

Article 10

Miscellaneous

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may engage in buying and selling of foreign exchange, discounting of bills, buying and selling of stocks and bonds in foreign currencies.

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may act as witness and handle other trust business.

Foreign-capital banks, branches of foreign-capital banks, Chinese-foreign equity joint banks may handle foreign exchange trust deposits and deposit box, credit investigation and consultancy.

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may handle the following Renminbi and foreign currency business on behalf of customers:

1.

acting as agent to exchange foreign currencies and bills and effect payment against credit cards;

2.

acting as agent to handle Renminbi and foreign currency savings deposits for local residents.

The agency contracts on the aforesaid business shall be reported to the SEZ branch for record.

Article 11

Service Charges

Foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks may set forth their respective rates of charges on all kinds of services offered to customers and shall report their terms and conditions to the SEZ branch for examination and record.

Article 12

Transfer of founds

Of the foreign exchange funds received by foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks after settling export transactions, documentary bills and collections or acting as agent to exchange foreign currencies, the portion which must be converted into Renminbi as required by the exchange control regulations shall be transferred to the SEZ branch on the date of receipt. All foreign exchange funds to be so transferred shall be converted at the middle rate quoted by the State Administration of Exchange Control.

Article 13

Financial Statements

The accounts of foreign-capital banks, branches of foreign-capital banks and Chinese-foreign equity joint banks shall be audited by accountants registered in the People's Republic of China and accepted by the local SEZ branch to which an auditing report shall be submitted.

Where statements in terms of Renminbi are required, they shall be made out with the amounts in foreign currencies converted into Renminbi at the buying states quoted by the State Administration of Exchange Control at the end of preceding month, quarter or year and shall be submitted to the SEZ branch within the time limit as prescribed in the Regulations Governing Foreign-capital banks and Chinese-foreign equity joint banks in Special Economic Zones of the People's Bank of China.

Article 14

Inspection

The SEZ branch may send inspectors to oversee and verify the business operations and financial conditions of any foreign-capital bank, branch of any foreign-capital bank or Chinese-foreign equity joint bank, and offer guidance on its business performance. The inspected bank shall give cooperation and duly provide its business report financial statements and other pertinent information as may be required The inspectors shall treat such information and as documents private and confidential.

Article 15

Punishment

Where any foreign-capital bank, any foreign-capital bank branch or Chinese-foreign equity joint bank violates the Regulations Governing Foreign-capital Banks and Joint Foreign Banks in Special Economic Zones of the People's Republic of China, any of the exchange control regulations of China and its SEZ branch may impose sanction of oral or written warning in the light of the seriousness of the case and the amount involved in the violation, or impose punishments in accordance with such pertinent provisions or regulations as the Rules For Punishment of Violating Exchange Control.