Laws of the People's Republic of China

The People's Bank of China

Decree of the People's Bank of China

No.3

According to the Guarantee Law of the People's Republic of China and other relevant State administrative regulations governing foreign exchange, the People' bank of China has drew the Measures for Administration of Guarantees Overseas by Institutions within the Chinese Territory, it is hereby promulgated and shall enter into force as of October 1,1996.

President of the People's Bank of China: Dai Xianglong

September 25, 1996

Measures for Administration of Guarantees Overseas by Institutions within the Chinese Territory

Article 1

These Measures are formulated with a view to promoting foreign economic and technological cooperation, supporting the development of foreign trade, promoting labour export, and import of foreign advanced technology, equipment and funds, smoothly carrying foreign financial activities, standardizing activities of and improving the administration of guarantees to overseas entities in line with "The Guarantee Law of the People's Republic of China" and relevant State administrative regulations governing foreign exchange.

Article 2

Guarantees made overseas referred to in these Measures are guarantees in the forms of guarantee letters, stand-by letters of credit, cashiers' checks and drafts, mortgages by properties stipulated in Article 34 of the "Guarantee Law of the People's Republic of China", hypothecation by moving properties stipulated in Section 1 of Chapter 4 of the "Guarantee Law of PRC" or by rights stipulated in Article 75 of the above-mentioned "Guarantee Law" provided by institutions within Chinese territory (excluding financial institutions with foreign investment inside China, hereinafter referred to as the guarantors) to institutions outside China or financial institutions with foreign investment inside China (creditors or beneficiaries, hereinafter referred to as the creditors) with the pledges that when the debtors (hereinafter referred to as the guaranteed) fail to repay the debts in line with the contracts, the guarantors shall perform the obligation of repayment. Such guarantees include:

(1)

call money guarantee;

(2)

guarantees for the lease of call money;

(3)

guarantees for accounts under compensation trade;

(4)

guarantees for the contracted engineering projects outside China; and

(5)

guarantees for others with the nature of foreign debts

Guarantors should not provide such guarantees in the form of lien or deposits.

The guarantees provided to the financial institutions with foreign investment inside China is regarded as made overseas.

Article 3

The People's Bank of China empowers the State Administration for Exchange Control and its subdivisions (hereinafter referred to as the SAEC) to be responsible for the examination, approval, administration and registration of guarantees made overseas.

Article 4

Guarantors as stipulated in these Measures are:

(1)

financial institutions which have been empowered of making guarantees overseas (excluding financial institutions with foreign investment); and

(2)

non-financial enterprise legal persons that have the capacity to pay off the debts, including Chinese enterprises and enterprises with foreign investment.

State organs and institutions cannot provide guarantees overseas except for sub-lending of loans provided for by foreign governments or international economic organizations.

Article 5

The combined balances of guarantees made overseas, forex guarantees within Chinese territory and foreign exchange debts of a financial institution cannot exceed 20 times their forex funds.

The balance of guarantees made overseas provided by a non-financial institution legal person cannot exceed 50% of its net assets or its forex revenue in the preceding year.

Article 6

Chinese enterprises can only provide such guarantees for the sub-divisions directly subordinate to it or for the foreign debts of the investment of the Chinese side of a stock enterprise.

For providing guarantees overseas, the ratio between the net assets and total assets of a Chinese trade enterprise cannot be lower than 15% in principle.

For providing guarantees overseas the ratio between the net assets and total assets of a Chinese non-trade enterprise cannot be lower than 30% in principle.

Article 7

Guarantors should not provide guarantee for money-losing overseas enterprises.

Article 8

When providing guarantees for enterprises with foreign investment (excluding solely foreign-owned enterprises), the guarantors should adhere to the principle of jointly undertaking risks and sharing profits, and at the same time, the use of foreign loans of the guaranteed should accord with the State industrial policy, and the loans cannot be converted into Renminbi for use without approval.

Guarantors should not provide guarantees for registered capital of enterprises with foreign investment.

Apart from the enterprises with foreign investment, guarantors should not provide guarantees for the foreign debts of investment by the foreign side of a enterprise with foreign investment.

Article 9

While examining and approving the guarantee provided to a trade enterprise outside China by a guarantor, the SAEC shall examine the trade scope, the ratio between assets and debts, losses and benefits of the guaranteed, and then appraise and decide the ceiling of guarantee the guaranteed shall receive.

While examining and approving a guarantee provided to a project contractor outside China by a guarantor, the SAEC shall examine the amount and risks of the contracted project, the ratio between the assets and debts, losses and benefits of the guaranteed, and then appraise and decide the ceiling of guarantee the guaranteed shall receive.

Article 10

Terms of reference for examining and approving guarantees overseas:

(1)

In providing guarantee overseas for Chinese enterprises and such guarantees within one year (including one year) for enterprises with foreign investment, guarantors should report to the SAEC of its province, autonomous region, municipality directly under the Central Government, municipality separately listed on the State plan or of the special economic zone for examination and approval; and

(2)

In providing guarantees of more than one year (excluding one year) to enterprises with foreign investment and to institutions outside China, guarantors should report to the SAEC of its province, autonomous region, municipality directly under the Central Government, municipality separately listed on the State plan or of the special economic zone for initial examination and then to the country's SAEC for examination and approval.

Article 11

Guarantors should provide part or all of the following materials to the SAEC in going through the formalities of reporting its deal for approval:

(1)

the approved feasibility study report of the project to be guaranteed and other approved related documents;

(2)

the balance sheets (consolidated balance sheets if the guaranteed is a group company) as audited by certified accountants;

(3)

the profit and loss report of the guaranteed which has been audited by the certified accountants;

(4)

the letter of intent of the guarantee contract;

(5)

the major debt contract or letter of intent under the guaranteed project and other related documents;

(6)

relevant materials as stipulated in Articles 8 and 9 of these Measures; and

(7)

other materials as required by the SAEC.

Article 12

Guarantors can only provide guarantees overseas upon approvals by SAEC.

Article 13

In providing guarantee overseas, guarantors should conclude written contracts with the creditors and the guaranteed, agreeing on the following rights and obligations of each party:

(1)

Guarantors have the right to supervise the funds and properties of the guaranteed;

(2)

After provision of guarantees, creditors and guaranteed should have the agreement of guarantors if they need to revise the guarantee contract and the guarantors should report the revision to the SAEC for examination and approval; otherwise the guarantors should automatically be relieved of their obligations;

(3)

After their providing guarantee overseas, the guarantors should, within the terms of validity of the contracts, perform their obligations as stipulated in the contracts. Guarantors that have performed their obligations have the right to seek compensations from the guaranteed;

(4)

After providing guarantee overseas, guarantors concerned should automatically be relieved of their obligations if the creditors fail to perform their obligations as set in the debt contracts within the term of validity of the guarantee contracts;

(5)

Guarantors have the right to ask the guaranteed to carry out the counter-guarantee measures or provide corresponding mortgages; and

(6)

Guarantors have the right to collect the agreed guarantee charges.

Article 14

After providing guarantee overseas, guarantors should go to the local SAEC to go through the formalities of guarantee registration.

After providing guarantee overseas, non-financial institutions should, within 15 days beginning from dates when guarantee contracts are concluded, go to the local SAEC to fill out the "Guarantee Overseas Registration Form"; collect the "Guarantee Overseas Registration Book"; draw and remit the forex needed by the guarantee contracts upon the check and approval of the local SAEC, and correspondingly reduce the balances of the guarantee and debts.

Financial institutions should fill out the "Guarantee Overseas Feedback Form" within 15 days following the end of each month and report the debt of preceding month every month.

Article 15

If an extension is needed upon the expiration of a guarantee, the guarantor should go to the local SAEC to go through the formalities of extension 30 days prior to the expiration of the debts and the SAEC shall examine and approve according to the terms of reference set in Article 10 of these Measures.

Article 16

Non-financial institution guarantors should return the "Foreign Guarantee Registration Book" to the original issuing SAEC and handle the writing-off formalities within 15 days beginning from the date when the debts under the guarantee account are due, the guarantee obligations are completed or other cases that lead to the suspension of the guarantee contracts. Financial institution guarantors should go through the writing-off formalities.

Article 17

If a guarantor provides guarantee overseas without approval, foreign guarantee contract it concludes is invalid.

If a guarantor provides guarantee overseas without approval or without registration after it has done so, the SAEC shall, according to the cases, issue a warning, or a criticism by way of issuing a notice, suspend or cancel the guarantee business of the guarantor.

Article 18

These Measures apply to the counter-guarantees overseas.

Article 19

These Measures shall enter into force as of October 1, 1996. "Measures for the Administration of Foreign Exchange Guarantees by Resident Institutions In China" promulgated on September 26, 1991 are nullified at the same time. The SAEC is entitled to interpret these Measures.