Laws of the People's Republic of China

the State Administration of Foreign Exchange

Notice of the State Administration of Foreign Exchange on Adjusting the Management Mode of Overseas Financing Guarantees as Provided by Banks within the Territory of China for Overseas Investment Enterprises

Hui Fa [2005] No. 61

The branches and foreign exchange departments of the State Administration of Foreign Exchange in all provinces, autonomous regions and municipalities directly under the Central Government, and the municipal branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo and all the head offices of designated Chinese-funded foreign exchange banks:

With a view to supporting enterprises in their participation in international economic and technological cooperation and competition, facilitating investment and settling the financing difficulties as encountered by overseas investment enterprises, the State Administration of Foreign Exchange, pursuant to the Measures for the Management of Overseas Guarantees as Provided by Organizations within the Territory of China and the Detailed Rules for Implementation thereof (hereinafter referred to as the Measures), has decided to further simplify the administrative formalities for a designated foreign exchange bank ( hereinafter referred to as the bank) to provide overseas financial guarantees for a wholly-owned subsidiary enterprise or a share holding enterprise that is registered abroad by an domestic organization (hereinafter referred to as the overseas investment enterprise). A notice on relevant issues is hereby given as follows:

I.

The State Administration of Foreign Exchange shall carry out balance administration on the overseas financing guarantee provided by banks for overseas investment enterprises and, according to indicators of the relevant bank, such as the paid-in foreign exchange capital or working capital, the overseas guarantee and contract performance in the previous year and other indicators, verify the surplus quotas for banks on an annual basis. A bank may, within its quotas, provide overseas financing guarantee for overseas investment enterprises by itself and need not report each transaction to the State Administration of Foreign Exchange or the branch thereof (hereinafter referred to as the foreign exchange bureau) for approval.

II.

A bank that is qualified for providing overseas guarantees may apply to the branch or the foreign exchange department of the State Administration of Foreign Exchange (hereinafter referred to as the foreign exchange branch) at its locality for the surplus quotas of overseas guarantees of the current year. Upon the preliminary examination of the foreign exchange branch, it shall be reported to the State Administration of Foreign Exchange for distribution.

III.

The head office of the bank shall file an application to the foreign exchange branch on behalf of all its banks in a centralized manner. For a branch of a foreign bank, the principal reporting bank or a branch or sub-branch that is authorized by the superior bank within the territory of China shall file an application on behalf of the said branch.

IV.

A bank that applies to the foreign exchange branch for the surplus quotas of overseas guarantee shall submit the following materials:

(1)

An application and an Application Form for the Balance of Overseas Financial Guarantee as Provided by A Bank within the Territory of China for An Overseas Investment Enterprise as filled out in the uniform format (see Attachment I for the form format);

(2)

The consolidated financial statements of the previous year as audited by a certified public accountant within the territory of China , including the balance sheet and the income sheet;

(3)

The name list of branches to be authorized;

(4)

The use of the surplus quotas of overseas guarantee in the previous year and the performance of contracts (except for the first application); and

(5)

Other materials as required by the foreign exchange branch.

V.

The surplus quotas of overseas guarantees as verified by the State Administration of Foreign Exchange for a bank may not exceed the paid-in foreign exchange capital or the consolidated working capital of the applicant bank. The surplus quotas of overseas guarantees may be directly used by the head office (or the principal reporting bank) of a bank or may be parceled out to the branches and sub-branches as authorized by the head office (or the principal reporting bank) within the territory of China. Where a bank parcels out the surplus quotas of overseas guarantee to its branches and sub-branches within the territory of China, the said branches and sub-branches shall, upon the strength of the documents regarding the authorization and breakdown of surplus quotas as produced by their head office (or the principal reporting bank), file with the local foreign exchange bureau for record.

VI.

The overseas financing guarantee as provided by a bank under the surplus quotas shall comply with the relevant provisions of the Measures. The summation of the overseas guarantee balance, foreign exchange guarantee balance within the Chinese territory and the foreign exchange debt balance thereof may not exceed 20 times of its self-owned foreign exchange capital. The summation of the foreign exchange deposit balance, the foreign exchange guarantee balance (calculated at a rate of 50%) and the foreign exchange investment (purchase of stocks) for an enterprise legal-person shall not exceed 30% of its own foreign exchange capital.

VII.

An overseas investment enterprise shall satisfy the following requirements for obtaining the overseas financing guarantee from a bank:

(1)

An overseas investment enterprise having legally registered abroad (including a wholly-owned subsidiary enterprise or a share holding enterprise as registered abroad by an organization within the Chinese territory);

(2)

Having gone through the formalities of foreign exchange registration for overseas investment with the foreign exchange bureau; and

(3)

Satisfying the specific provisions of the Measures.

VIII.

Where a bank provides overseas financing guarantee for an overseas investment enterprise, it shall, in accordance with the provisions of the Measures, go through the formalities for periodical registration of overseas guarantees with the local foreign exchange bureau..

IX.

Where a bank that has provided overseas financing guarantee for an overseas investment enterprise plans to perform its duty, it shall, in accordance with the relevant provisions, go through the formalities with the local foreign exchange bureau for verification . The performance of a counter-guarantee as provided by the parent company of an overseas investment enterprise within the territory of China or by any other counter-guarantor to a bank within the territory of China need not be subject to the verification of the foreign exchange bureau. Where a bank performs its duty by using the RMB capital as provided by a counter-guarantor within the territory of China, the bank that provides the overseas guarantees shall, upon the strength of the agreement on counter-guarantees, go through the formalities for verification on duty performance by purchasing foreign exchange and may not conduct any duplicate foreign exchange purchase for a same performance of overseas guarantees.

X.

A bank shall, in accordance with the provisions of the present Notice, report the relevant information to the foreign exchange bureau, summarize all the transactions of the provision of guarantees under the surplus management item within the banking system as well as the full-caliber overseas guarantee data, fill out the Monthly Report Form of Overseas Guarantees as Provided by A Bank within the Territory of China (see Attachment II for the format) and report them to the foreign exchange bureau within the first 5 workdays of each month.

XI.

The non-financial overseas guarantees as provided by a bank shall still be subject to the proportional management of assets and debts according to the provisions in force. Where a bank within the territory of China provides any overseas financial guarantee to a client other than an overseas investment enterprise, the present Measures shall be observed.

XII.

The foreign exchange bureau shall carry out an examination on the business operations under the overseas guarantee balance management item to check out whether or not they comply with the relevant provisions. For the part of overseas guarantee that exceeds the verified surplus quotas, or for any bank that fails to conduct the business operations of overseas guarantees in accordance with the Measures, it shall be investigated and handled in pursuance of the Regulation of the People's Republic of China on the Administration of Foreign Exchange and any other relevant provision.

XIII.

The present Circular shall go into effect as of September 1, 2005.

All the foreign exchange branches are requested to forward the present Notice to the center sub-branches and foreign-funded banks as soon as they receive the present Notice. All the designated Chinese-funded banks shall forward it to their branches and sub-branches under administration as soon as possible after receiving the present Notice. In the meanwhile, all the foreign exchange branches may accept the applications of banks within their jurisdiction for the year 2005 as of the date of receipt of the document and report them to the State Administration of Foreign Exchange after the preliminary examination.

Annex:

1.

Application Form for the Balance of Overseas Financial Guarantee as Provided by A Bank within the Territory of China for An Overseas Investment Enterprise

2.

Monthly Report Form of Guarantees as Provided by A Bank within the Territory of China