Laws of the People's Republic of China

(Promulgated on January 7,1986 by the State Council)

CONTENTS

CHAPTER I GENERAL PROVISIONS

CHAPTER II THE CENTRAL BANK

CHAPTER III SPECIALISED BANKS

CHAPTER IV OTHER FINANCIAL INSTITUTIONS

CHAPTER V CONTROL OF CURRENCY ISSUE

CHAPTER VI CONTROL OF CREDIT FUNDS

CHAPTER VII CONTROL OF INTEREST RATES

CHAPTER VIII CONTROL OF DEPOSITS, LOANS AND SETTLEMENTS

CHAPTER IX HANDLING OF VIOLATIONS

CHAPTER X SUPPLEMENTARY ARTICLES

CHAPTER I GENERAL PROVISIONS

   Article 1. These Regulations are formulated in order to strengthen control over banks and other financial institutions, ensure the healthy development of financial services and promote the establishment of socialist modernisation.

   Article 2. All banks and other financial institutions carrying on business such as deposits, loans, personal savings, discounting of bills, foreign exchange, settlement of accounts, trusts, investments, financial leasing and floating of securities, shall comply with the provisions of these Regulations.

   Article 3. The central bank, specialised banks, and other financial institutions shall conscientiously and thoroughly carry out national financial policies. All their financial activities shall be directed towards developing the economy, stabilising the currency, and increasing the economic benefits of socialism.

   Article 4. Institutions other than financial institutions are prohibited from carrying on financial business.

CHAPTER II THE CENTRAL BANK

   Article 5. The People's Bank of China is the State organ through which the State Council leads and controls the fiscal affairs of the nation, and is the central bank of the State, and shall carry out in full the following duties:

(1) Research and draw up national guidelines and policies for financial activities, and arrange for their implementation after approval;

(2) Research and draw up draft financial legislation;

(3) Formulate the basic regulations for financial business;

(4) Control the issuing of currency,regulate currency circulation, and maintain currency stability;

(5) Control interest rates on deposits and loans, and set the rate of exchange between renminbi and foreign currencies;

(6) Devise State credit plans, exercise centralised control over credit funds, and exercise uniform control over the working capital of State enterprises;

(7) Control foreign exchange,bullion, and the State foreign exchange and gold reserves;

(8) Examine and approve the establishment and dismantling and merger of specialised banks and financial agencies;

(9) Lead, control,co-ordinate, supervise,and inspect the operations of specialised banks and other financial institutions;

(10) manage the State Treasury, and issue government bonds on its behalf;

(11) Control the shares, bonds and other securities of enterprises, and control the money market;

(12) Engage in relevant international financial activities on behalf of the government.

   Article 6. In accordance with the provisions of the State laws and administrative regulations, the People's Bank of China shall control the State's insurance enterprises.

   Article 7. The People's Bank of China shall establish a council to be the principal policy-making body of the head office. The principal functions of the council shall be as follows:

(1) To examine and consider financial guidelines and policy;

(2) To examine and consider important matters relating to annual State credit plans, cash plans and foreign exchange plans;

(3) To define principles for the establishment, dismantling and merger and the allocation of functions among specialised banks and financial institutions;

(4) To investigate other important matters concerning the overall financial situation.

   Article 8. The People's Bank of China shall establish branches and sub-branches in accordance with the requirements of economic development.

Each branch and sub-branch of the People's Bank of China shall carry out duties relevant to the People's Bank of China in its area of jurisdiction, exercising leadership and control over financial affairs in that area of jurisdiction.

   Article 9. The People's Bank of China shall provide services to specialised banks and other financial institutions in such areas as allocation of funds, co-ordination of functions, provision of information, development and training of personnel and assist in the development of their operating capacity.

   Article 10. The head office and branches and sub-branches of the People's Bank of China shall be responsible for conciliation and arbitration in any business disputes occurring between specialised banks and other financial institutions.

   Article 11. The People's Bank of China shall not directly accept deposits from or provide loans to enterprises or individuals.

CHAPTER III SPECIALISED BANKS

   Article 12. In accordance with the requirements of national economic development, the State shall establish a number of specialised banks. Each specialised bank shall, according to its specified scope of business, operate deposits, loans, settlement of accounts, personal savings deposits, etc., in national and foreign currencies.

   Article 13. All specialised banks shall be independently accountable economic entities and shall independently exercise their official powers and engage in business activities in accordance with the provisions of the State laws and regulations.

   Article 14. Specialised banks shall carry out the following basic duties:

(1) Formulate specific operational systems and procedures in accordance with the basic regulations for financial business;

(2) Make decisions on loans to enterprises in accordance with State policy and State plans;

(3) Vary interest rates within prescribed limits;

(4) Be responsible for movement of funds within their own systems;

(5) Carry out supervision of credit and supervision of settlements of accounts;

(6) Exercise cash control in regard to account-holding units, in accordance with State provisions;

(7) Carry out supervision of pay-roll funds of account-holding units, in accordance with State regulations;

(8) Subject to authorisation by the People's Bank of China, control the working capital of State enterprises;

(9) In accordance with regulations, hold and dispose of retained profits;

(10) With the approval of the State Council or the head office of the People's Bank of China, engage in relevant international financial business activities.

   Article 15. Branches and sub-branches established by specialised banks shall comply with the following requirements:

(1) They shall accord precisely with the requirements of economic development, and shall have operational capacity commensurate with their scale;

(2) They shall conform with the limits of their allocated scope of business;

(3) They shall have personnel qualified in financial operations and administration;

(4) They shall conform with economic accounting principles.

Head offices of specialised banks shall exercise vertical leadership over subordinate branches and sub-branches.

   Article 16. Head offices of specialised banks shall submit the following matters to the head office of the People's Bank of China for examination and approval:

(1) Matters of business guidelines and policy falling within the scope of Article 5, paragraph one, item (1) of these Regulations;

(2) Matters outside the allocated scope of business;

(3) Codes of business regulations falling outside current basic regulations for financial business, or involving other specialised banks, requiring uniform regulations;

(4) Formulation and amendment of articles of association;

(5) Establishment of branches abroad.

Items in the above paragraphs falling outside the scope of responsibility and jurisdiction of the central bank as prescribed in these Regulations shall all be submitted by the head office of the People's Bank of China to the State Council for examination and approval.

   Article 17. The following matters pertaining to branches and sub-branches of specialised banks shall be submitted to provincial branches of the People's Bank of China for examination and approval:

(1) Important business regulations formulated in the light of specific conditions in local areas of jurisdiction;

(2) Major changes in the channelling of credit funds;

(3) Matters involving other specialised banks in the same area of jurisdiction, requiring a uniformly prescribed system of business regulations.

   Article 18. Specialised banks shall, in accordance with provisions, provide the People's Bank of China with reports on the performance of credit plans, statistical reports, financial reports, and operational reports.

   Article 19. The establishment of specialised bank branches and sub-branches shall be approved respectively in accordance with the following provisions:

(1) Head offices, to be reviewed by the head office of the People's Bank of China, and approved by the State Council;

(2) Provincial branches, applications to be submitted by head offices of specialised banks to the head office of the People's Bank of China for approval;

(3) Local and municipal central sub-branches, and county branches, applications to be submitted by provincial bank branches to provincial branches of the People's Bank of China for approval;

(4) Operational units below the county branch level,applications to be submitted by district and municipal central sub-branches of specialised banks to local and municipal branches of the People's Bank of China for approval.

   Article 20. Head offices of specialised banks and branches, sub-branches and offices of specialised banks that have been approved for establishment shall be issued with a "Permit to Carry on Financial Business" by the head office and branch offices respectively of the People's Bank of China, and in addition, in accordance with the provisions of the "Regulations on the Control of Registration of Industrial and Commercial Enterprises", shall carry out registration procedures and obtain a business licence before commencing business.

   Article 21. When specialised bank branches, sub-branches and offices that have been established with approval need to relinquish their licence, they shall submit an application to the original approving unit two months prior to closure of business. After approval, assets and liabilities shall be liquidated and discharged under supervision of the unit which made the original approval. When liquidation has been completed, the "Permit to Carry on Financial Business" and the business licence shall be revoked.

CHAPTER IV OTHER FINANCIAL INSTITUTIONS

   Article 22. For the purposes of this Chapter, other financial institutions shall include trust and investment companies, rural credit co-operatives, urban credit co-operatives, and other financial organisations established with the approval of the People's Bank of China.

The provisions of these Regulations relating to specialised banks are applicable to other financial institutions except where other State regulations exist,or where there are special provisions in this Chapter.

   Article 23. The establishment of other financial institutions, as well as fulfilling the conditions prescribed in Article 15 of these Regulations, shall also possess the minimum capital prescribed by the People's Bank of China, and shall have articles of association.

   Article 24. In large and middle-sized cities where a definite need exists, trust and investment companies may be established, to handle such things as capital and asset trusts, asset custodianship, financial leasing, economic consulting, issuing of securities, and investments.

The business activities of trust and investment companies shall be carried out in accordance with plans approved by the People's Bank of China.

   Article 25. Applications to establish trust and investment companies shall be submitted for approval according to the following provisions:

(1) National trust and investment companies, to be reviewed by the head office of the People's Bank of China, and approved by the State Council;

(2) Provincial trust and investment companies, to be reviewed by provincial branches of the People's Bank of China, and approved by the head office of the People's Bank of China;

(3) Local and municipal trust and investment companies, to be reviewed by local or municipal branches of the People's Bank of China and approved by provincial branches of the People's Bank of China.

   Article 26. Trust and investment companies established by specialised banks in large and middle-sized cities shall be independent legal entities, shall carry out independent accounting, and shall be subject to the leadership of the People's Bank of China in their business operations.

Where specialised banks carry out business in trusts without setting up independent trust and investment companies, the sources and uses of all funds relating to that business must be included in the specialised banks' credit plans and their earnings be consolidated in the specialised banks' accounts.

   Article 27. Credit co-operatives may be established in rural areas and in large and middle-sized cities. Credit co-operatives shall be co-operative financial organisations of a mass character, and shall practise democratic management.

Rural credit co-operatives shall operate deposits,loans, settlements and personal savings in rural areas.

Urban credit co-operatives shall operate deposits, loans and settlements for urban street collective organisations and individual industrial and commercial households, and be agents for individual savings deposits, etc.

Control and approval procedures for credit co-operatives shall be separately determined by the People's Bank of China.

   Article 28. Local levels of the People's Government may not establish local banks.

Individuals may not establish banks or other financial institutions, and may not carry on financial business.

CHAPTER V CONTROL OF CURRENCY ISSUE

   Article 29. Currency issue is to be controlled centrally and uniformly. The head office of the People's Bank of China shall submit currency issue plans according to the requirements of the nation's economic development, and shall implement them after approval by the State Council.

   Article 30. Finance departments may not overdraw on the People's Bank of China.

The People's Bank of China may not directly purchase government bonds.

   Article 31. Distribution of renminbi issue funds by issue treasuries at all levels of the People's Bank of China shall be carried out according to the distribution orders by the higher level issue treasury. No unit or individual may draw on issue treasury reserves in contravention of the provisions.

   Article 32. Cash withdrawals by specialised banks from the People's Bank of China shall be limited to the balance of their deposits in branches of the People's Bank of China, and overdrafts may not be made.

Cash deposits by specialised banks to the People's Bank of China shall be transacted according to the cashier system of the People's Bank of China.

   Article 33. Specialised banks shall carry out investigative studies on the circulation of currency, and submit regular reports to the People's Bank of China.

   Article 34. Damaged renminbi notes and coins shall be exchanged by specialised banks in accordance with the provisions of the People's Bank of China. The People's Bank of China shall be responsible for withdrawing and destroying them at all levels.

CHAPTER VI CONTROL OF CREDIT FUNDS

   Article 35. Credit receipts and expenditures of specialised banks must, in accordance with the regulations, be included in State credit plans. State credit plans shall be devised by the head office of the People's Bank of China, and after approval by the State Council, shall be issued and put into force by the head office of the People's Bank of China.

   Article 36. The source of People's Bank of China credit funds shall be State treasury deposits. Administering banks may not use or transfer them.

Financial depositing procedures for State authorities, non-governmental bodies, armed forces units, etc., shall be formulated by the People's Bank of China.

   Article 37. All deposits accepted by specialised banks shall be held in the deposit reserves of branches and sub-branches of the People's Bank of China. The proportion of deposit reserves shall be determined by the People's Bank of China, which shall also carry out adjustments as required by the tightening or easing of the money market.

   Article 38. Branches and sub-branches of the People's Bank of China may extend loans to specialised banks within plans approved by higher level banks, and in accordance with credit policy and credit plans.

   Article 39. Funds may be loaned between specialised banks.

   Article 40. Specialised banks shall establish reserves for bad debts. The amount of reserves for bad debts shall be determined by the head office of the People's Bank of China in consultation with the Ministry of Finance.

   Article 41. The foreign exchange credit funds of specialised banks shall be controlled according to the State regulations for foreign exchange control.

CHAPTER VII CONTROL OF INTEREST RATES

   Article 42. Maximum interest rates for all deposits and minimum interest rates for all loans shall be formulated by the head office of the People's Bank of China, and after approval by the State Council the interest rate differential shall be determined separately by the head office of the People's Bank of China in accordance with the State economic policy, and adjustments shall be made according to changes in the prevailing circumstances.

All head offices of specialised banks shall have a prescribed authority to vary interest rates. The range within which interest rates may vary shall be prescribed by the head office of the People's Bank of China.

The deposit and lending interest rates of credit co-operatives may be raised and lowered as prescribed and authorised by the People's Bank of China.

   Article 43. In addition to being given preferential treatment by banks, interest subsidy procedures may be carried out for loans in respect of industries and products to which the State gives developmental priority and loans which are of benefit to the social economy, while not of obvious economic benefit to the enterprise. The interest that is to be subsidised shall be defrayed by the area or department approving the interest subsidy.

   Article 44. Interest rates on deposits and loans between the People's Bank of China and specialised banks shall be stipulated by the head office of the People's Bank of China, and shall be adjusted according to the tightening and easing of the money supply.

   Article 45. The interbank rates between specialised banks shall be agreed upon through negotiation between the two parties.

CHAPTER VIII CONTROL OF DEPOSITS, LOANS AND SETTLEMENTS

   Article 46. The legitimate rights and interests of depositors are protected by the State, and depositors have independent control over the use of their deposits. No other persons may make use of them.

   Article 47. The State gives protection to the savings deposits of individuals, and practises the principles of voluntary deposit, freedom of withdrawal, interest on deposits, and confidentiality of depositors.

   Article 48. Loans issued by specialised banks shall be in strict compliance with examination and approval procedures and the responsibility system, and shall be issued in accordance with lending policy and the relevant regulations, to ensure the security of loans and their beneficial use.

Specialised banks have authority to inspect and supervise the way in which loans are utilised, and to inform themselves concerning such matters as the implementation of borrowing enterprises' planning, their operations management, financial activities, and reserves of goods and materials.

   Article 49. Specialised banks enjoy the right of independence. No unit or individual may compel them to issue loans, or obstruct the recovery of loans. Unless approved by the State Council, no units have the right to exemption from repayment of loans.

   Article 50. Specialised banks shall maintain sufficient payment capacity to ensure the timely repayment of debts.

   Article 51. The acceptance and discounting of bills by specialised banks shall be limited to bills issued through legal commercial action.

   Article 52. Specialised banks carrying out transfers of funds to settle accounts must uphold the legitimate rights and interests of both parties to the transaction. The regulations governing settlements shall be formulated by the People's Bank of China.

CHAPTER IX HANDLING OF VIOLATIONS

   Article 53. Specialised bank branches and sub-branches or other financial institutions established without authorisation, in violation of the provisions of these Regulations, shall be ordered by the People's Bank of China to cease operating, and their illegal income shall be confiscated in accordance with the law, and investigation of administrative responsibility carried out among the persons directly responsible.

   Article 54. Unauthorised use of Issue Treasury Funds in violation of the provisions of these Regulations shall be recovered, and investigation of administrative responsibility carried out among the persons directly responsible.

   Article 55. When financial personnel take advantage of their office to make use of loans for their personal profit, investigation of administrative responsibility shall be carried out and their unlawful income shall be confiscated.

   Article 56. When lending losses resulting from dereliction of duty by financial personnel occur, investigation of administrative and economic responsibility shall be carried out among the persons directly responsible.

   Article 57. If specialised bank branches and sub-branches, or other financial institutions are directed to issue loans, resulting in lending losses, investigation of administrative and economic responsibility shall be carried out among the persons directly responsible.

   Article 58. The persons directly responsible in Articles 54 to 57 of this Chapter shall constitute criminal offenders, and investigation of criminal responsibility shall be carried out by the judiciary in accordance with the law.

   Article 59. If specialised banks or other financial institutions, in violation of the provisions of these Regulations, make use of or transfer financial deposits, or fail to transfer funds to deposit reserves within the prescribed time limit and in the prescribed proportions, the People's Bank of China shall withhold an equal amount of deposits and shall collect an additional penalty interest in accordance with the lending interest rate, and at the same time investigation of responsibility shall be carried out among the administrative staff and the principal responsible persons.

CHAPTER X SUPPLEMENTARY ARTICLES

   Article 60. These Regulations are not applicable to financial institutions with joint Chinese and foreign capital or financial institutions with solely foreign proprietorship.

   Article 61. Supplementary regulations for the control of branches and sub-branches of specialised banks and other financial institutions in special economic zones shall be formulated by the head office of the People's Bank of China in accordance with these Articles.

   Article 62. The head office of the People's Bank of China shall be responsible for interpreting these Articles; detailed provisions for the implementation of each Article shall be formulated by the head office of the People's Bank of China.

   Article 63. These Regulations shall come into force on the date of promulgation.