Laws of the People's Republic of China

   Article 1 (Purpose and Basis)The present Procedures are formulated in accordance with the relevant laws and regulations and in the light of the actual situations in Shanghai for the purposes of strengthening the administration of real estate mortgage, or safeguarding the legal rights and interests of the parties concerned, and of keeping order of the real estate market.

   Article 2 (Scope of Application)

The present Procedures shall be applicable to the real estate mortgage in Shanghai.

   Article 3 (Definition of Following Terms Used in the Present Procedures)

1. "Real estate mortgage" means a civil juristic act in which the mortgagor supplies his/her legitimately owned real estate or real estate property right (hereinafter both referred to as real estate), without transferring the mode of occupancy, to the mortgagee as a guaranty for the performance of an obligation on time (including the repayment for a loan, similarly hereinafter), and the mortgagee has the right to dispose of the collateral according to law and has the priority for repayment when the obligation can not be performed on time;

2. "Mortgagor" means a legal person, other organization, or a citizen who supplies real estate to the mortgagee as a guaranty for his/her or a third person's performance of an obligation;

3. "Mortgagee" means a legal person, other organization, or a citizen who receives real estate mortgage as the debtor's guaranty for the performance of an obligation;

4. "House with limited property rights" means a house owned by an owner who has the full rights of occupancy and use, and limited rights of disposal and proceeds;

5. "Future right of a house" means the right of the ownership of a house to be obtained at a certain future time agreed upon in a buying and selling contract or the right of obtaining a house to be completed at a certain future time agreed upon in a construction project contract.

   Article 4 (Basic Principles)

The real estate mortgage shall follow the principles of voluntariness, justice, equal compensation, honesty and trust.

The parties concerned who establish the relationship of real estate mortgage must abide by the relevant laws, rules and regulations of the State and Shanghai Municipality.

The relationship of real estate mortgage established according to law shall be protected by the laws.

   Article 5 (Administrative Authorities)

Shanghai Municipal Real Estate Administration is the competent administrative authorities of the real estate mortgage in Shanghai.

The District/County Real Estate Administration, vocationally subordinating to the leadership of Shanghai Municipal Real Estate Administration, is the competent administrative authorities of the real estate mortgage in its own region.

   Article 6 (Real Estate Eligible for Hypothec)

The following real estate may be hypothecated:

1. The granted land-use right obtained according to law;

2. The house with title and the land-use right within its dimensions obtained according to law;

3. The future right of a house obtained according to law;

4. Other real estate eligible for mortgage according to law.

   Article 7 (Real Estate Ineligible for Hypothec)

1. The land-use right obtained through administrative allotment and with no house and other annex built on the plot;

2. Buildings of historical relic and other memorable buildings;

3. The State-owned residential house that has been leased;

4. The house located within the removal compass or the requisition compass of collectively-owned land according to law;

5. The real estate in the custody of the government;

6. The real estate of a foreign-invested enterprise that has not yet been confirmed by a Chineses registered accountant to have paid up its investment share;

7. The real estate that has not yet been registered for a title deed according to law;

8. The real estate of vague or disputable property right;

9. The real estate that has been sealed up according to an adjudication by a judicial organization or a decision by an administrative organ, or has been restricted in other ways;

10. Other real estate that cannot be hypothecated according to law.

   Article 8 (Creation of Hypothec Relevant to the Land-Use Right Through Granting)

In respect of hypothecating the land-use right obtained through granting, the provisions of the State and Shanghai Municipality on granting and transferring the land-use right and the terms stipulated in the granting contract must not be violated.

When the land-use right is hypothecated, the original house and other annex on the plot before the hypothecation shall be hypothecated simultaneously.

When all the houses on the plot obtained through granting of land-use right are hypothecated, the land-use right of the space occupied by those houses shall be hypothecated simultaneously.

When part of the houses on the plot obtained through granting of land- use right is hypothecated, the corresponding portion of the land-use right of the space occupied by the hypothecated part shall be hypothecated simultaneously.

   Article 9 (Creation of Hypothec on the House of Limited Property Right)

In respect of a hypothec on a house of limited property right, the hypothec shall not go beyond the limit measured by the original investment proportion of the owner, and shall conform to the provisions of the State and Shanghai Municipality on the control of houses of limited property right.

   Article 10 (Creation of Hypothec on Future Right of a House)

A hypothec on the future right of a house shall conform to the relevant provisions on forward selling of houses and the management of construction contract.

   Article 11 (Creation of Hypothec on the Leased Real Estate)

In respect of hypothecating the leased real estate, the mortgagor shall clearly state the fact to the prospective mortgagee that the real estate concerned has been leased. The original tenancy relationship shall remain valid after a real estate mortgage contract (hereinafter referred to as mortgage contract) has been signed.

   Article 12 (Creation of Hypothec on Real Estate with Time Limit)

If an enterprise with business time limit hypothecates its real estate, the created mortgage term must not exceed the business time limit of the enterprise.

In respect of a hypothec on the real estate with land-use time limit, the created mortgage term must not exceed the land-use time limit.

   Article 13 (Hypothec on the Jointly Owned Real Estate)

In respect of a hypothec on a house jointly owned by shares, the hypothec shall be limited within the shares that the mortgagor holds.

In respect of a hypothec on a jointly owned house, the hypothec shall be created with unanimous agreement of all the sharers, and the mortgagor is the collective of all the sharers.

   Article 14 (Creation of One Hypothec on More Than Two Pieces of Real Estate)

In respect of one hypothec on more than two pieces of real estate, the interested real estate shall be regarded as one piece of collateral. During the hypothec period, the joint guarantee obligations are inseparable. If there has been other agreement between the parties of the mortgage, the agreement shall be observed.

   Article 15 (Creation of More Than One Hypothecs on the Same One Piece of Real Estate)

When the real estate that has been hypothecated is remortgaged, the mortgagor shall inform the prospective second mortgagee of the existing mortgage status beforehand.

In respect of the creation of more than two hypothecs on the same one piece of real estate, the deadline for performing the obligation guaranteed by the latter hypothec shall not precede the deadline for performing the obligation guaranteed by the former hypothec.

   Article 16 (House Built After Signing of Mortgage Contract)

The house built on the plot after the signing of the real estate mortgage contract does not pertain to the collateral.

CHAPTER III MAKING OF MORTGAGE CONTRACT

   Article 17 (Form of Mortgage Contract)

A mortgage contract that establishes real estate mortgage relationship must be made in writing.

   Article 18 (Place of Signing a Mortgage Contract)

A mortgage contract must not be signed in a country that has not established diplomatic relations with China (PRC) or in a country or region that has not set up trade representative's office in China (PRC).

   Article 19 (Main Contents of Mortgage Contract)

The following shall be specified in a mortgage contract:

1. Parties to the mortgage;

2. Location, type, structure, area, value, title, right of use, and title number of the collateral;

3. Amount and time limit of the liabilities guaranteed by the mortgage;

4. Custodian, custody form of the collateral, responsibilities for the custody and responsibilities for unexpected damage or loss;

5. Responsibilities for the breach of the contract;

6. Conditions of abolishing the mortgage;

7. Ways of settling disputes;

8. Other items agreed upon by both parties to the mortgage;

9. Time and place of signing the mortgage contract.

If a party to the mortgage is a citizen, his/her name, nationality and address shall be specified in the mortgage contract. If a party to the mortgage contract is a legal person or other organization, the name of the legal person or the name of the organization and the name, nationality and address of its legal representative shall be specified in the mortgage contract.

   Article 20 (Language of Mortgage Contract)

A mortgage contract shall be written in Chinese. In case of other language used simultaneously, the Chinese version is considered as the standard.

   Article 21 (Notarization and Attestation of Mortgage Contract)

A mortgage contract signed between citizens or between a legal person or other organization and a citizen must be notarized by a notary office. A mortgage between a legal person and other organization, between legal persons, or between other organizations must be notarized by a notary office if it is signed out of China (PRC); however, if it is signed inside China (PRC), the parties to the mortgage may decide by themselves as whether to have it notarized or not.

A mortgage contract signed inside China (PRC) may be notarized by the notary office at the place where the mortgage contract is signed or where the collateral is located. If a mortgage contract is signed in Hong Kong, Macao or Taiwan regions, it shall be notarized by a notary office officially recognized by the relevant departments of the State Council of the P.R. China. If a mortgage contract is signed in a foreign country, it shall be notarized by a notary office of that country and attested by the embassy (or consulate) or trade representative's office of the P.R. China in the country.

   Article 22 (Validity of Mortgage Contract)

A mortgage contract signed in a foreign country becomes effective as of the date it is attested. A mortgage contract signed in Hong Kong, Macao or Taiwan regions, or a mortgage contract signed inside China (PRC) that must be notarized according to law or according to an agreement reached by the parties to the mortgage, becomes effective as of the date it is notarized. A mortgage contract signed inside China (PRC) that is not notarized according to an agreement reached by the parties to the mortgage becomes effective as of the date it is signed.

   Article 23 (Appraisal of Collateral)

The collateral shall be appraised for the purpose of establishing real estate mortgage relationship, and the appraised value shall be specified in the mortgage contract. The value of the collateral may be determined through consultation by the parties to the mortgage.

   Article 24 (Insurance of Collateral)

If the parties concerned agree to have the collateral insured, the mortgagor shall have the collateral insured at an insurance company.

   Article 25 (Lease of Collateral)

When the real estate that has been created hypothec is leased, the lessor must clearly inform the prospective lessee of the fact that the real estate has been mortgaged.

   Article 26 (Agreement on the Restriction of Collateral)

If the mortgagee wants to restrain the mortgagor from leasing, lending, subletting the collateral, or from changing the nature of use of the collateral after the real estate has been mortgaged, they shall reach such an agreement in the mortgage contract.

   Article 27 (Invalid Contract)

The following mortgage contracts are invalid contracts:

1. A mortgage contract signed in violation of Article 7 of the present Procedures;

2. A contract guaranteed by a mortgage contract is invalid;

3. Other mortgage contracts signed in violation of the law.

   Article 28 (Custody of Collateral and Custodian's Responsibility)

A collateral is in the mortgagor's custody.

The custodian shall keep the collateral safe and intact during the custody period.

   Article 29 (Appointed Inspection of Mortgagee)

The mortgagee shall, pursuant to the agreement in the mortgage contract, have the right to inspect the collateral in the mortgagor's custody.

   Article 30 (Restrictions on Transfer, Demolition or Remodel of Collateral)

Without a written consent from the mortgagee the mortgagor must not sell, exchange, donate, demolish, or remodel the real estate that has been hypothecated unless it is required to be demolished by a construction project of the State.

The mortgagor shall promptly inform the mortgagee in writing if the real estate that has-been hypothecated has been included within the removal compass due to construction project of the State.

If the collateral is inherited or split up, the successor shall promptly inform the mortgagee in writing.

   Article 31 (Obligations After the Transfer of Collateral)

If a collateral is transferred, the obligations guaranteed by the collateral remain unchanged.

When, as a citizen, the mortgagor dies or is declared dead, his/her legal inheritor/inheritress or devisee shall assume corresponding mortgage obligations secured by the actual value of the secured property that has been inherited or devised.

   Article 32 (Remedies for Loss of or Damage to Collateral)

The mortgagor shall promptly inform the mortgagee of the loss of or damage to the collateral except for natural deterioration and shall take effective measures to prevent the loss or damage from aggravation.

When the collateral cannot or is not sufficient to perform the obligation as a guaranty because of the loss of or damage to the collateral resulting from the mortgagor's fault, the mortgagor shall resupply or increase secured property so as to remedy the loss in the value of the original collateral.

   Article 33 (Compensation and Indemnity)

The compensation and indemnity obtained for the loss of or damage to the collateral not attributable to the mortgagor's fault, or obtained because the collateral has been legally included within the removal compass shall be notarized and treated as secured property.

CHAPTER V THE MODIFICATION, CANCELLATION AND TERMINATION OF A MORTGAGE CONTRACT

   Article 34 (Modification of Mortgage Contract)

If the real estate that has been hypothecated has been remodeled or included within the removal compass according to law, and if it is compensated for in the form of exchanging real estate title, the parties to the mortgage shall hypothecate the newly-obtained real estate anew and modify the mortgage contract accordingly; if it is compensated for in cash, the mortgagor shall have the compensation notarized, and shall treat the compensation as secured property, or the parties to the mortgage may select another real estate of the same value as the original collateral to recreate the hypothec and shall modify the mortgage contract accordingly.

If, according to Section 2, Article 32 of the present Procedures, the mortgagor resupplies or increase the collateral, the mortgage contract shall be modified accordingly.

Unless provided in Section 1 and Section 2 of this Article, modification of the mortgage contract must be subject to the consensus from the parties concerned through consultation.

The parties concerned shall sign a mortgage modification contract if the mortgage contract is modified.

   Article 35 (Cancellation of Mortgage Contract)

If the hypothecated real estate that has been included within the removal compass due to a construction project of the State has been compensated for by cash, and if the compensation has paid off the debt guaranteed by the collateral, the mortgage contract shall be cancelled.

A mortgage cancellation contract must be signed subject to the consensus from the parties concerned through consultation except the case pursuant to the provisions stipulated in the previous paragraph.

   Article 36 (Termination of Mortgage Contract)

A mortgage contract shall terminate if the mortgagor clears of his/her debt, or the mortgagee abandons the claim to the obligation during the contract term.

   Article 37 (Validity of Mortgage Registration)

A mortgage registration must be transacted with the real estate registration office upon the establishment of the mortgage relationship. The parties concerned who do not have their real estate mortgage relationship registered shall not claim against a third party.

   Article 38 (Time and Agency for Mortgage Registration)

The parties to a real estate mortgage shall register with the municipal or district/county real estate registration office according to each office's extent of authority over the administration of real estate registration within the following stipulated time.

1. A mortgage shall, if the contract is signed inside China, be registered within 30 days from the date when it becomes effective;

2. A mortgage shall, if the contract is signed in Hong Kong, Macao or Taiwan regions or in a foreign country, be registered within 60 days from the date when it becomes effective.

In respect of a mortgage on the future right to a house, if the house is completed during the mortgage term, the mortgage registration shall be transacted anew within 30 days from the date when the mortgagor has obtained the title to the house.

   Article 39 (Documents Required for Mortgage Registration)

When going through the mortgage registration,the parties to the mortgage must produce the mortgage contract, identity cards, and must complete application forms for real estate mortgage registration. In addition, the mortgagor shall submit the following documents:

1. Construction land planning license and certificate of land-use right of State-owned land in respect of a mortgage on the granted land-use right;

2. Title to the house and certification of the land-use right in respect of a mortgage on the house and the land-use right within its occupation limits;

3. Legally valid forward selling (buying) contract of the house in respect of a mortgage on the future right to a house bought in advance; documents listed under Item 2 of this section if mortgage registration is transacted anew when the house is completed during the mortgage term;

4. Legally valid construction project contract and certification of land-use right in respect of a mortgage on the future right to a house under a construction project contract; documents listed in Item 2 of this section if mortgage registration is transacted anew when the house is completed during the mortgage term.

If the parties to the mortgage entrust an agent with real estate mortgage registration, a letter of authorization and the agent's identity card must be submitted.

   Article 40 (Registration of Mortgage Modification)

If a mortgage contract is modified, the parties to the mortgage shall have the mortgage modification registered with the original mortgage registration office within 30 days from the date when the modification contract becomes effective.

   Article 41 (Registration of Mortgage Cancellation)

If a mortgage contract is cancelled or terminated, the parties to the mortgage shall have the mortgage cancellation registered with the original mortgage registration office within 30 days from the date when the contract is cancelled or terminated.

   Article 42 (Production of Registration Certificate)

A real estate mortgage registration office shall produce registration certificate to the registrant within 15 days from the date when it receives the application for mortgage registration, mortgage modification registration, or mortgage cancellation registration.

   Article 43 (Registration Fee)

The parties to the mortgage shall pay the registration fee to the registration office for mortgage registration, mortgage modification registration, or mortgage cancellation registration.

   Article 44 (Reference to Registration Documents)

The relevant documents concerning mortgage registration, mortgage modification registration or mortgage cancellation registration may be open to public for reference. The person who refers to the documents shall pay reference fee.

CHAPTER VII DISPOSAL OF COLLATERAL

   Article 45 (Conditions of Disposal)

The mortgagee has the right to demand the disposal of the collateral under any one of the following conditions:

1. The debtor fails to perform his/her obligation on the due date according to the agreement;

2. If the debtor, as a citizen, dies or is claimed dead and nobody performs the due obligation on his/her behalf,

3. The legitimate inheritor/inheritress or devisee of the mortgagor refuses to perform the due obligation;

4. The mortgagor is declared disbanded or bankrupt;

5. The mortgagor disposes the collateral at liberty in violation of the stipulations under Article 30;

6. The performance of the mortgage contract is or may be affected when capital reduction or split-up, etc. happen to the mortgagor, whether as a legal person or as an organization;

7. Other conditions agreed upon in the mortgage contract.

   Article 46 (Ways of Disposal)

Under any one of the conditions stipulated in Article 45 of the present Procedures, the parties to the mortgage may, through consultation, dispose the collateral in the following ways:

1. Assignment based on an evaluated price;

2. Auction.

When the parties to the mortgage cannot reach an agreement on assigning the collateral based on an evaluated price, the collateral shall be disposed through auction.

   Article 47 (Notice Before Disposal)

The mortgagee shall inform the mortgagor in writing before the disposal of the collateral; and shall, at the same time, inform the co-owners or the lessee in writing if the collateral is co-owned or leased.

   Article 48 (Preemption)

When the collateral is disposed according to the present Procedures, except through auction, the following legal person, other organization or citizen shall, under the same condition, have the preemption:

1. The lessee of the leased collateral;

2. The co-owner with shares in the co-owned collateral;

3. The co-owner of the real estate that does not fit to be divided or that shares a common set of facilities with the collateral.

Before the disposal of the collateral through auction, the mortgagee shall inform in writing the interested parties who have the preemption as listed in the above stipulation of this Article.

   Article 49 (Priority to Repayment)

When a real estate with more than two hypothecs is disposed, the priority to repayment shall be determined by the following order:

1. The registrant who registers the mortgage within the time limit shall have the priority over the one who registers the mortgage after the deadline for registration;

2. In respect of the registrants who register the mortgage within the time limit, the one with a mortgage contract of an earlier effective date shall have the priority;

3. In respect of the registrants who register the mortgage after the deadline for registration, the one who has an earlier registration time record with the real estate registration office shall have the priority.

When the real estate that has been hypothecated is disposed, the newly- built house on the land may, according to law, be disposed together with the collateral, however, the mortgagee has no priority to repayment from the proceeds out of the newly-built house.

   Article 50 (Treatment of Tenancy Relationship Concerning Disposal)

After the collateral within the lease term has been disposed, the original tenancy relationship shall remain valid if the collateral has been leased before the creation of the hypothec; however, the original tenancy relationship shall terminate automatically if the collateral has been leased after the creation of the hypothec.

   Article 51 (Treatment of Proceeds out of Allocated Land-use Right at Disposal of Collateral)

If the land-use right that creates the hypothec has been obtained in the form of allocation, and after it is disposed according to law, the mortgagee may have the priority to repayment only after the amount equal to the money for the land-use right is deducted from the proceeds out of the disposal.

   Article 52 (Collateral After Bankruptcy)

The real estate that creats the hypothec before bankruptcy is excluded from the bankrupt property after the mortgagor becomes bankrupt. However, if the proceeds out of the disposal of the collateral exceed the amount due for performing the obligation, the balance is included in the bankrupt property.

   Article 53 (Suspension of Auction)

When the parties to the mortgage chose to dispose the collateral through auction, the auction may be suspended under any one of the following conditions that occurs before the auction procedure starts:

1. There is a dispute over the title to the collateral;

2. The mortgagee demands to suspend the auction;

3. The mortgagor applies for suspending the auction if he/she is willing to perform the obligation instantly, or provides the mortgagee with the proof that he/she is able to perform the obligation;

4. Other conditions due for suspending the auction.

   Article 54 (Regulations Governing Ways of Disposal)

If the parties to the mortgage choose to dispose the collateral through auction, the disposal shall be made according to the relevant regulations concerning the auction of house in Shanghai.

If the parties to the mortgage choose to dispose the collateral by assignment based on an evaluated price, the disposal shall be made according to the relevant regulations concerning the management of real estate transaction in Shanghai.

   Article 55 (Distribution of Proceeds From Disposal)

The distribution of the proceeds from the disposal of the collateral shall comply with the following order and principle:

1. To pay the expenses required for the disposal of the collateral;

2. To pay the due taxes after the disposal of the collateral;

3. To pay the debt and the penalty for breaking the contract;

4. To return the balance to the mortgagor.

If the proceeds from the disposal of the collateral are insufficient to perform the obligation and pay the penalty, the mortgagee has the right to recover the insufficiency.

   Article 56 (Shift of Allocated Land-use Right)

When the future right to the hypothecated house on the land plot with allocated land-use right is disposed, the corresponding allocated land- use right shall be shifted at the same time.

   Article 57 (Liability for Breaking Contract)

Once the mortgage contract becomes effective, the parties to the mortgage shall fulfil the contract; if any party does not fulfil or partially fulfil the contract, he/she shall bear the liabilities for breaking the contract and shall compensate the other party for economic losses sustained therefrom.

If the mortgage contract cannot be fulfilled due to the fault made by any party to the mortgage, the faulty party shall compensate the other party for economic losses sustained therefrom.

   Article 58 (Compensation for Third Party's Loss)

The mortgagor shall compensate the third party for a loss resulting from the mortgagor's unauthorized lease, lending, transfer, selling, exchange, donation or other form of treatment or disposal of the collateral.

   Article 59 (Liability for Concealing Circumstance of Collateral)

The mortgagor shall compensate for other person's loss resulting from the mortgagor's concealment of the circumstances that the collateral has been sealed up, distrained or has already been hypothecated or leased, etc.

   Article 60 (Release From Liability)

The mortgagor shall promptly inform the mortgagee of the complete or partial loss, damage or devaluation of the collateral due to force majeure. After obtaining relevant proof, the mortgagor may be released from the liability of resupplying or increasing the collateral.

   Article 61 (Settlement of Dispute)

Any dispute between the parties to the mortgage arising in the performance of the mortgage contract or in the disposal of the collateral shall be settled through consulation, the parties to the mortgage may, according to the laws, apply to an arbitral authority for arbitration, or bring a suit to the people's court.

CHAPTER IX SUPPLEMENTARY PROVISIONS

   Article 62 (Formulation of Appraisal, Registration and Reference Fee Standard)

The fee standard for appraising a collateral, registering a mortgage and referencing to registration documents, which are set by the Municipal Real Estate Administration, shall be implemented after being verified and approved by the Municipal Bureau of Price Control and the Municipal Finance Bureau.

   Article 63 (The Supplementary Mortgage Registration)

In respect of the unregisteed mortgage contract or mortgage modification contract signed before the implementation of the present Procedures, the parties concerned shall, within the time limit stipulated by the Municipal Real Estate Administration, register belatedly with the municipal or district/county real estate registration office.

   Article 64 (Application to State-owned Real Estate)

The relevant provisions on the control of state-owned assets shall simultaneously apply to the mortgage on the state-owned real estate.

   Article 65 (Interpretation of Actual Application)

The Municipal Real Estate Administration shall be responsible for the interpretation of the actual application of the present Procedures.

   Article 66 (Effective Date)

These Procedures shall become effective on January 1,1995.