Laws of the People's Republic of China

the National Reform Commission, the Ministry of Finance

Decree of the National Development and Reform Commission and the Ministry of Finance

No. 26

For the purpose of solving the problem of constant production and seasonal use of chemical fertilizers, promoting the balanced production of chemical fertilizers enterprises and satisfying agricultural production needs for chemical fertilizers in peak seasons, a reserve system of chemical fertilizers during off-seasons is adopted, and the Measures for the Administration of Commercial Reserves of Chemical Fertilizers during Off-Seasons are specially formulated and are hereby promulgated for implementation.

Director of the National Development and Reform Commission Makai

Minister of the Ministry of Finance Jin Renqing

January 12, 2005

Measures on Governing Commercial Reserves of Chemical Fertilizers during Off-Seasons

Chapter I General Provisions

Article 1

The present Measures are formulated for the purpose of ensuring that business enterprises of chemical fertilizers do a good job in maintaining off-season commercial reserves (hereinafter referred to "off-season reserves"), alleviating the inconsistency of constant production and seasonal use of chemical fertilizers and guaranteeing the supply of chemical fertilizers in the course of springtime plowing.

Article 2

The present Measures shall apply to the entrusting entities, enterprises maintaining the reserves and other relevant entities involved in maintaining off-season reserves of chemical fertilizers.

The entrusting entities of off-season reserves of chemical fertilizers shall refer to the Economic and Trade Department of the National Development and Reform Commission (hereinafter referred to as the "NDRC") and the Economic Construction Department of the Ministry of Finance that are responsible for determining enterprises for maintaining off-season reserves of chemical fertilizers and signing storage agreements therewith.

The enterprises maintaining off-season reserves of chemical fertilizers refer to those that file an application for maintaining off-season commercial reserves of chemical fertilizers and are approved to do so, and reach storage agreements with the entrusting entities of off-season reserves of chemical fertilizers.

Article 3

The principles as storing by enterprises, providing loans by banks, offering interests by the government, operating in the market and bearing risks of profits and losses by the enterprises themselves shall be adhered to for the off-season reserves of chemical fertilizers.

Chapter II Administration of Off-season Reserves of Chemical Fertilizers

Article 4

The NDRC and the Ministry of Finance shall be in charge of the administration of off-season reserves of chemical fertilizers.

The NDRC, in combination with the Ministry of Finance, shall determine the areas, the varieties and quantities of off-season reserves of chemical fertilizers. The enterprises maintaining the reserves shall be determined by way of bidding in principle.

Article 5

The term limit of off-season reserves of chemical fertilizers shall be six months, generally calculated from October to next March. The entrusting entities may make proper adjustments on the starting and ending dates for off-season reserves of some areas in compliance with the seasonal diversity in the use of chemical fertilizers.

Chapter III Scale and Distribution of Off-season Reserves of Chemical Fertilizers

Article 6

The total annual amount of off-season reserves of chemical fertilizers shall not be more than 8 million tons in kind, and the chemical fertilizers, mainly including those with high concentration as the urea and diammonium phosphate (DAP), shall, in principle, be rationed in accordance with the requirements of agricultural production areas.

Article 7

The entrusting entities shall decide the areas, quantities and the variety of off-season reserves of chemical fertilizers year by year. An enterprise maintaining the reserves may make proper adjustments on the varieties and quantities according to the changes of the local agricultural production and shall report the changes to the entrusting entity for archival purpose.

Article 8

A single target amount of off-season reserves of chemical fertilizers shall be not less than 50 thousand tons in general.

Article 9

A reserving place shall be located in a main production region of grains and cottons with convenient transportation.

Chapter IV Basic Requirements for an Enterprise Maintaining the Reserves and the Determination Thereof

Article 10

An entrusting entity shall authorize a eligible intermediary institution to determine the enterprises maintaining the off-season reserves of chemical fertilizers by way of bid inviting.

Article 11

The enterprises maintaining off-season reserves of chemical fertilizers shall give priority to circulation enterprises, and give concurrent attention to large-sized production enterprises of chemical fertilizers.

Article 12

An enterprise maintaining off-season reserves of chemical fertilizers shall possess the following basic requirements:

(1)

having the legal qualification for operating chemical fertilizers within the territory of PRC and be able to independently assume civil liabilities;

(2)

having a registered capital of not less than 30 million yuan (RMB) in principle;

(3)

having an annual sales amount of mort than 300 thousand tons in the recent three years for a circulation enterprise of chemical fertilizers, or have a sales network and an annual production amount of more than 400 thousand tons in the recent three years for a production enterprise of chemical fertilizers, and the average sales amount in a region of off-season reserves in the recent three years shall be not less than the target amount of off-season reserves;

(4)

having a storage ability suitable for the demands in the scale and regional distribution of off-season reserves of chemical fertilizers;

(5)

having a good banking credit; and

(6)

any other condition as provided for by the State.

Chapter V Agreements on Off-season Reserves and Liabilities

Article 13

An agreement on maintaining off-season reserves of chemical fertilizers shall be concluded between an entrusting entity and an enterprise maintaining the reserves, which shall stipulate the varieties and quantities of off-season reserves of chemical fertilizers and clarify the liabilities and obligations of both parties.

Article 14

Where an enterprise maintaining reserves fails to maintain the reserves in accordance with the agreement or unlawfully changes the variety, quantity or place of the reserves, or fails to submit a report concerning the purchasing, selling and storing chemical fertilizers for off-season reserves in accordance with the agreement, the entrusting entity shall disqualify it and deduct or reduce the interest discounts.

Article 15

Any dispute arising in the implementation of an agreement shall be disposed by referring to relevant provisions in the Contract Law.

Chapter VI Liabilities for An Enterprise Maintaining Reserves

Article 16

For an enterprise maintaining reserves, the maintaining of off-season reserves of chemical fertilizers shall be conducted together with the normal operations of the enterprise, and its accumulated purchase amount during the off-season in target area shall be no less than the sum of the average purchase and the target amount during the recent three years, while its average stock shall exceed 50% of target amount of the average stock in recent three years, and the chemical fertilizers shall mainly be purchased from the production enterprise of chemical fertilizers. At the same time, the accumulated purchase or production amount of chemical fertilizers during the off-season shall increase as compared with the corresponding amount of the recent three years.

Article 17

An enterprise maintaining reserves shall in time purchase chemical fertilizers for the target area during the off-season in light of the storage agreement and ensure that their quality complies with the state standards.

Article 18

An enterprise maintaining reserves shall in time sell the reserved chemical fertilizers in the target areas after the expiry of off-season reserves of chemical fertilizers. The chemical fertilizers reserved in off-season shall be limited to meeting the demands of agricultural production and shall not be exported.

Chapter VII Supervision and Check

Article 19

The NDRC and the Ministry of Finance shall strengthen their check on the qualifications for the enterprises maintaining the reserves to accomplish the task of maintaining off-season reserves of chemical fertilizers, and authorize a local financial supervision commissioners' office of the Ministry of Finance to carry out the supervision and administration on the conditions of the off-season reserves of chemical fertilizers according to the principle of territorial jurisdiction.

Article 20

A monthly reporting system shall be adopted for off-season reserves of chemical fertilizers and the ledger management system shall be adopted. After the off-season reserves of chemical fertilizers begins, an enterprise maintaining reserves shall, within the first 10 working days of each month, submit ledger data monthly according to the format and time as required by the entrusting entity, and compile and submit a Monthly Reporting Form of an Enterprise Maintaining Reserves on Purchasing, Selling and Storing Chemical Fertilizers during the Off-Season (see Annex I for a format) and send a copy to the local financial supervision commissioners' office of the Ministry of Finance. Under special circumstances, an enterprise maintaining reserves shall send irregular reports on the purchasing, selling and storing of chemical fertilizers in off-seasons in compliance with the requirements of the entrusting entity.

Article 21

A local financial supervision commissioners' office of the Ministry of Finance shall conduct dynamic selective examination and verification to the purchase, sales and stocks within target areas of the enterprises maintaining reserves and timely report to the Ministry of Finance and the NDRC no matter arising any problem.

Article 22

The NDRC, the Ministry of Finance and a local financial supervision commissioners' office of the Ministry of Finance shall rescind its storage qualification, deny to grant interest subsidies and confiscate the deposit for contract performance in case an enterprise maintaining reserves is confirmed to have deception problems.

Chapter VIII Financial Administration

Article 23

The funds necessary for off-season reserves of chemical fertilizers shall be provided by the bank. Each bank shall grant loans to enterprises maintaining reserves on the premise of holding the principle of good credit standing and guaranteeing the safe use of funds, and the enterprises maintaining reserves shall repay capitals with interests on schedule.

Article 24

The interest subsidies shall be granted by the central treasury for off-season reserves of chemical fertilizers.

The interest discount cost for off-season reserves of chemical fertilizers shall be determined year after year by the entrusting entities referring to the quasi-ex-works price of the urea as prescribed by the State or the market price of any other variety and reasonable transportation and incidental expenses.

An enterprise maintaining reserves that meets the requirements of Article 16 of the present Measures and confirms the quantities for off-season reserves in accordance with the target amount, shall be given an interest subsidy; otherwise, it shall be regarded as having failed to accomplish the task of maintaining off-season reserves and shall be deprived of interest subsidies.

The funds for interest discounts by the central treasury shall be computed on the basis of the cost of interest discounts, the quantities of off-season reserves, the term of off-season reserves as determined by the entrusting entities and the base interest rates for half-year circulating fund loans, and shall be paid to the enterprises maintaining reserves as an overall subsidy without considering their balance.

An enterprise maintaining reserves shall, within 10 working days after the expiry of the term of off-season reserves of chemical fertilizers, compile and submit a report on off-season reserves of chemical fertilizers and fill in an Application Form of An Enterprise Maintaining Reserves on Interest Subsidies for Commercial Reserves of Chemical Fertilizers during Off-Seasons (see Annex II for a format), together with such relevant bills for transporting chemical fertilizers into the target areas, proving the purchase of chemical fertilizers into target areas and vouchers for purchasing chemical fertilizers outside the target areas. After all the above relevant bills and documents are examined and verified by the local financial supervision commissioners' office of the Ministry of Finance, the enterprise maintaining reserves shall be submitted to the Ministry of Finance for the allocation of interests.

The interest discount funds for off-season reserves of chemical fertilizers granted to an enterprise directly under the Central Government shall be directly allocated by the central treasury; for other enterprises, the said interest discount funds shall be allocated by the central treasury via local treasury departments, and the local treasury departments shall reallocate them to enterprises maintaining reserves with exact amounts within 15 working days after the central treasury's allocation of discount funds to the local treasury, and shall not delay, detain or transfer any of the discount funds, and shall be subject to the supervision of a local financial supervision commissioners' office of the Ministry of Finance.

The profits and losses for operating off-season reserves of chemical fertilizers shall be assumed by the enterprise maintaining reserves itself.

Chapter IX Supplementary Articles

Article 25

The railway and other transportation departments shall give priority to the transport of chemical fertilizers for off-season reserves so as to ensure their transportation.

Article 26

The local development and reform commissions and the departments of treasury shall coordinate relevant departments in an effort to support the enterprises maintaining reserves to handle well the work related to maintaining off-season reserves, and supervise and urge the enterprises maintaining reserves to implement storage agreements.

Article 27

These Measures shall be implemented as of the date of promulgation.

Article 28

The power to interpret these Measures shall be vested in the NDRC and the Ministry of Finance according to their respective duties.

Article 29

In case there are different provisions of the state, such provisions shall be followed.

Annex I Monthly Reporting Form of An Enterprise Maintaining Reserves on Purchasing, Selling and Storing Chemical Fertilizers during Off-seasons (omitted)

Annex II Application Form of an Enterprise Maintaining Reserves on Interest Subsidies for Commercial Reserves of Chemical Fertilizers during Off-Seasons (omitted)