Laws of the People's Republic of China

The Ministry of Foreign Trade and Economic Cooperation

Official Reply of the Ministry of Foreign Trade and Economic Cooperation Concerning Issues of Foreign-capital Enterprise Mortgaging its Property or Rights and Interests to Others

WaiJingMaoFaHanZi [1996] No.66

October 31, 1996

The Foreign Economic and Trade Commission of Tianjin:

Your document, JinJingMaoZiGuanZi [1996]No.172, has been received. The relevant issues hereby is replied as follows:

According to Article 24 of the Rules for the Implementation of the Law of the People's Republic of China on Foreign-capital Enterprises, "where foreign-capital enterprises mortgage or transfer their property or rights and interests to overseas person, they shall be approved by the authorities for examination and approval and recorded in the authorities for industry and commerce administration". "The mortgage to overseas person" in the article means the foreign-capital enterprise mortgages its property or rights and interests to overseas financial institutions (including the branches established in domestic), corporation or enterprises and other economic institutions.

Foreign-capital enterprises which mortgage or transfer their property or rights and interests to overseas person shall subject to relevant laws, regulations of China and satisfy the following terms:

1.

Investors have paid their subscribed capital in accordance with the article of the enterprise;

2.

After the enterprise completed of the mortgage loan, the proportion of its registered capital to the total amount of investment shall be in accordance with provisions in the Interim Provisions of Proportion of Registered Capital to the Total Amount of Investment of Chinese-foreign Equity Joint Ventures;

3.

The time period of mortgage shall not exceed the operating period of the enterprises.

Where implementing the forgoing provisions, the authorities of examination and approval shall require the enterprises applying for mortgage to provide the following documents:

1.

the application of the enterprise to mortgage its property or rights and interests to overseas person. The application shall set out the reasons of mortgage, property to be mortgaged and the name or title of the mortgagee, and shall undertake the following: before filing the application, no real rights of security has be set upon the property to be mortgaged, or where the property has been set real rights of security upon, the enterprises has informed the mortgagee referred in the contract for mortgage relevant facts;

2.

the approval certificate of the enterprise;

3.

the articles of the enterprise;

4.

the balance sheet of the enterprise;

5.

the capital verification report and property certificate of the property to be mortgaged issued by Chinese CPA;

6.

the decision of the board of directors and the supreme authority of the enterprise on the approval of mortgaging the property;

7.

A copy of the contract for mortgage.

Where the examination and approval authority has checked the correction of the forgoing documents, it may approve the enterprise and report a copy to the administrative authority for industry and commerce and administrative authority of foreign exchange.

The foregoing shall be abided by, where any problems occur, ask for an instruction in time please.

Attachment: The reply of approval XX Company to mortgage its property (or rights and interests), (for reference only) (omitted)