MEASURES FOR THE ADMINISTRATION OF FOREIGN-CAPITAL FINANCIALINSTITUTIONS AND CHINESE-FOREIGN EQUITY JOINT FINANCIAL INSTITUTIONS INTHE SHANGHAI MUNICIPALITY

MEASURES FOR THE ADMINISTRATION OF FOREIGN-CAPITAL FINANCIALINSTITUTIONS AND CHINESE-FOREIGN EQUITY JOINT FINANCIAL INSTITUTIONS INTHE SHANGHAI MUNICIPALITY Important Notice: This English document is coming from the "LAWS AND REGULATIONS OF THE PEOPLE'S REPUBLIC OF CHINA GOVERNING FOREIGN-RELATED MATTERS" (1991.7) which is compiled by the Brueau of Legislative Affairs of the State Council of the People's Republic of China, and is published by the China Legal System Publishing House.

In case of discrepancy, the original version in Chinese shall prevail.

Whole Document MEASURES FOR THE ADMINISTRATION OF FOREIGN-CAPITAL FINANCIAL INSTITUTIONS AND CHINESE-FOREIGN EQUITY JOINT FINANCIAL INSTITUTIONS IN THE SHANGHAI MUNICIPALITY (Approved by the State Council on September 7, 1990 and promul- gated by Decree No. 2 of the People's Bank of China on September 8, 1990) Chapter I General Provisions Article 1 These Measures are formulated for the purpose of meeting the needs of opening to the outside world and the economic development of the Shanghai Municipality, strengthening and perfecting the administration of foreign- capital financial institutions and Chinese-foreign equity joint financial institutions.

Article 2 The term "foreign-capital financial institutions and Chinese-foreign equity joint financial institutions", referred to in these Measures, denotes the following institutions which are established with approval and registered to engage in business operations in accordance with these Measures and with the pertinent provisions of other laws and regulations of the People's Republic of China: 1) foreign-capital banks with their head offices established in the Shanghai Municipality (hereinafter referred to as "foreign bank"); 2) branches of foreign banks established in the Shanghai Municipality (hereinafter referred to as "foreign branch bank"); 3) banks established in the Shanghai Municipality with joint capital and operation by foreign financial institutions and Chinese financial institutions (hereinafter referred to as "joint bank"); and 4) financial companies established in the Shanghai Municipality with joint capital and operation by foreign financial institutions and Chinese financial institutions (hereinafter referred to as "joint financial company").

Article 3 Foreign-capital financial institutions and Chinese-foreign equity joint financial institutions shall abide by the laws and regulations of the People's Republic of China and their legitimate business activities and lawful rights and interests shall be protected by Chinese laws.

Article 4 The People's Bank of China is the competent authority in charge of examining and approving, administering, and supervising foreign-capital financial institutions and Chinese-foreign equity joint financial institutions. The People's Bank of China authorizes its Shanghai Branch to exercise day-to-day administration and supervision of foreign-capital financial institutions and Chinese-foreign equity joint financial institutions.

Chapter II Establishment and Registration Article 5 Any party applying for the approval to set up a foreign bank shall satisfy the following requirements: 1) the investor is a financial institution; 2) the applicant has a representative office of more than three years' standing inside China; and 3) the applicant possesses total assets of more than US$ 10 billion at the end of the year prior to the submission of such an application.

Article 6 Any party applying for the approval to set up a foreign branch bank shall satisfy the following requirements: 1) the applicant has a representative office of more than three years' standing inside China; 2) the applicant possesses total assets of more than US$ 20 billion at the end of the year prior to the submission of such an application; and 3) in the home country or region of the applicant, there is a sound system for financial administration and supervision.

Article 7 Parties applying for the approval to set up a joint bank or a joint financial company shall satisfy the following requirements: 1) each investing party to a joint bank or joint financial company is a financial institution; and 2) the foreign investor has a representative office inside China.

Article 8 For a foreign bank to be set up, the foreign investor shall apply to the People's Bank of China and submit the following documents and data: 1) an application for the establishment thereof, which shall include the name of the intended bank, the registered capital and the amount of the paid-in capital, and the types of business operations the bank intends to engage in; 2) a feasibility study report; 3) the statements of assets and liabilities of the investor during the three successive years prior to the submission of such an application, together with the relevant certifying documents; 4) the draft articles of association of the intended bank; 5) a copy of the business licence of the investor approved and issued by the competent authority concerned in the home country or region of the investor; and 6) other documents and data as required by the People's Bank of China.

Article 9 For a foreign branch bank to be set up, the head office of the foreign bank concerned shall apply to the People's Bank of China and submit the following documents and data: 1) an application duly signed by the chairman of the board of directors or the general manager of the bank, which shall include the name of the intended branch bank, the amount of operating funds approved and allocated by the head office, and the types of business operations the branch bank intends to engage in; 2) annual reports for the three successive years prior to the submission of such an application; 3) a copy of the business licence of the applying bank approved and issued by the competent authorities of the home country or region of the applying bank; and 4) other documents and data as required by the People's Bank of China.

Article 10 For a joint bank or a joint financial company to be set up, all the parties thereto shall jointly apply to the People's Bank of China and submit the following documents and data: 1) an application for the establishment thereof, which shall include the name of the intended joint financial institution, the name of each investing party thereto, the registered capital and the amount of the paid-in capital, the respective percentage of contributions by the parties, and the types of business operations the joint financial institution intends to engage in; 2) a feasibility study report jointly prepared by the parties thereto; 3) the agreement, the contract and the draft articles of association of the joint financial institution initialled by the authorized representative of each of the parties thereto; 4) the statements of assets and liabilities of each of the parties thereto during the three successive years prior to the submission of such an application, together with relevant supporting documents; 5) copies of the respective business licences of all the parties thereto approved and issued by the competent authorities concerned of the home country or region of each of the parties; and 6) other documents and data as required by the People's Bank of China.

Article 11 Any of the documents and data prescribed in Articles 8, 9 and 10 of these Measures, with the exception of the annual reports, if written in a foreign language, shall be submitted together with a Chinese translation thereof.

Article 12 After the application for the approval of such establishment has been examined and approved by the People's Bank of China, an official application form shall be issued to the applicant(s).

The applicant(s) shall, after filling in the official application form, formally apply to the People's Bank of China and shall submit the following documents for the application: 1) the official application form duly signed by the legal representative(s) of the applicant(s) or the representative(s) authorized by the applicant(s) (which shall be submitted in triplicate); 2) a list of the principal persons in charge of the institution to be set up and their respective curriculum vitae; 3) power(s) of attorney for the principal persons in charge of the institution; 4) where a foreign branch bank is to be set up, letters of undertaking issued by the head office assuming for its branch office the obligations for tax payment and debt repayment; and 5) other relevant data.

Article 13 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall, within 30 days of receipt of the certificate of approval issued by the People's Bank of China, undertake the procedures of registration for the issuance of business licence with the administrative department for industry and commerce in accordance with the pertinent laws and regulations of the People's Republic of China and shall, within 30 days of commencement of business operations, undertake the procedures for tax registration with the tax authorities in accordance with the law.

Article 14 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution whose establishment has been approved shall, after obtaining the business licence, apply to the State Administration of Foreign Exchange Control for the approval and issuance of a Licence for Business Operations in Foreign Exchange.

Article 15 In the event that a foreign-capital financial institution or a Chinese- foreign equity joint financial institution should fail to commence its business operations within 12 months of receipt of the certificate of approval issued by the People's Bank of China, the certificate of approval shall automatically become null and void.

Article 16 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall apply to the People's Bank of China for verification and approval in respect of any one of the following items: 1) adjustment and transfer of the investment capital stock; 2) change of the business site; 3) change of the chairman (or the vice-chairman) of the board of directors, or the president (or the vice-president), the general manager (or the deputy general manager), or the president (or vice-president) of a branch office; and 4) establishment of a branch office outside China.

Chapter III Registered Capital and Operating Funds Article 17 The minimum amount of the registered capital of a foreign bank or a joint bank shall be freely convertible currencies equivalent to US$ 30 million.

The minimum amount of the registered capital of a joint financial company shall be freely convertible currencies equivalent to US$ 20 million. Their respective paid-in capital shall be no less than 50 percent of their respective registered capital.

A foreign branch bank shall be allocated as its operating funds by its head office a sum of freely convertible currencies equivalent to not less than US$ 10 million.

Article 18 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall, within 30 days of receipt of the certificate of approval issued by the People's Bank of China, raise in full the paid- in capital operating funds, which shall be verified by a Chinese registered accountant, who shall, upon verification, issue a certificate to that effect.

Article 19 Each year, a foreign bank, a joint bank, or a joint financial company shall allocate 25 percent of its after-tax net profit as supplementary capital until the total amount of the paid-in capital and reserve funds is twice that of the registered capital. Each year, a foreign branch bank shall keep 25 percent of its after-tax net profit inside China to supplement its operating funds until the kept profit is equal to its operating funds.

Chapter IV Business Scope Article 20 The People's Bank of China shall, based on the application submitted to it, grant permission to a foreign bank, a joint bank, or a foreign branch bank to engage in part or all of the following business operations: 1) deposits in foreign currencies; 2) loans in foreign currencies; 3) discounts of negotiable instruments in foreign currencies; 4) investments in foreign currencies; 5) remittances in foreign currencies; 6) guarantees of foreign exchange; 7) import and export settlement; 8) buying and selling of foreign exchange on its own account or on customers' account; 9) buying and selling of securities in foreign currencies; 10) acting as an agent for the exchange of foreign currencies and for the cashing of negotiable instruments in foreign currencies; 11) acting as an agent for payments against credit cards in foreign currencies; 12) custody and safe deposit box services; 13) credit and financial standing investigation and consultancy services; and 14) other services approved.

Article 21 The People's Bank of China shall, based on the application submitted to it, grant permission to a joint financial company to engage in part or all of the following business operations: 1) loans in foreign currencies; 2) discounts of negotiable instruments in foreign currencies; 3) investments in foreign currencies; 4) guarantees of foreign exchange; 5) buying and selling of securities in foreign currencies; 6) credit and financial standing investigations and consultancy services; 7) trust in foreign currencies; 8) deposits in foreign currencies with each deposit amounting to not less than US$ 100,000 for period of no less than three months; and 9) other services approved.

Article 22 The terms "deposits in foreign currencies" referred to in this Chapter denotes the following deposits denominated in foreign currencies: 1) interbank deposits inside and outside China; 2) non-interbank deposits outside China; 3) deposits by foreigners inside China; 4) deposits by overseas Chinese and by compatriots from Hong Kong, Macao and Taiwan; 5) deposits by enterprises with foreign investment; 6) deposits of loans granted by foreign-capital financial institutions or Chinese-foreign equity joint financial institutions to enterprises other than those with foreign investment; and 7) other kinds of deposits approved.

Article 23 In handling import and export settlement, foreign banks, joint banks or foreign branch banks shall offer services only to enterprises with foreign investment and those enterprises other than those with foreign investment which are authorized to engage in import and export operations. But with respect to import settlement with enterprises other than those with foreign investment, the funds needed for the import in question shall have come from the loans of the bank which is handling the settlement.

Chapter V Management of Business Article 24 A foreign-capital institution or a Chinese-foreign equity joint financial institution which engages in deposit business operations shall place deposit reserves with the Shanghai Branch of the People's Bank of China.

The ratios of the reserves as against various deposits shall be determined by the People's Bank of China and shall be adjusted in accordance with the actual needs. Such deposit reserves shall be interest-free.

Article 25 The total amount of loans which a foreign-capital financial institution or a Chinese-foreign equity joint financial institution grants to any one enterprise and its associated enterprises may not exceed 30 percent of the sum total of its paid-in capital and its total reserves, with the exception of loans specially approved by the People's Bank of China.

Article 26 The total amount of investments by a foreign-capital financial institution or by a Chinese-foreign equity joint financial institution may not exceed 30 percent of the sum total of its paid-in capital and its total reserves, with the exception of investments in financial enterprises approved by the People's Bank of China.

Article 27 The total assets of a foreign-capital financial institution or of a Chinese-foreign equity joint financial institution may not exceed 20 times the sum total of its paid-in capital and its total reserves.

Article 28 30 percent of the operating funds of a foreign branch bank shall be put by in the form of interest-bearing assets as prescribed by the People's Bank of China, which shall include depositing the said funds in a bank or banks designated by the People's Republic of China.

Article 29 Real estate owned by a foreign-capital financial institution or by a Chinese-foreign equity joint financial institution may not exceed 25 percent of the sum total of its paid-in capital and its total reserves; its other assets may not exceed 15 percent thereof.

Article 30 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall ensure the mobility of its assets.

Article 31 The total amount of deposits by sources inside China in a foreign-capital financial institution or in a Chinese-foreign equity joint financial institution may not exceed 40 percent of its total assets inside China.

Article 32 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall maintain proper reserves for bad debts in accordance with the relevant provisions.

Article 33 The interest rates of deposits and loans of a foreign-capital financial institution or of a Chinese-foreign equity joint financial institution and the various service charges shall be determined by the Bankers' Association through consultation or be fixed in the light of the international market and shall be submitted to the Shanghai Branch of the People's Bank of China for approval.

Article 34 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall, in accordance with the relevant provisions, draw the reserve fund, the staff bonus fund, the welfare fund and the enterprise development fund from the profit after tax paid in accordance with the law.

Article 35 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall engage at least one Chinese citizen as member of its senior managerial body. The senior managerial personnel of a foreign-capital financial institution or of a Chinese-foreign equity joint financial institution may not concurrently hold important positions in any other economic organizations.

Article 36 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall invariably appoint a Chinese registered accountant and such an appointment is subject to confirmation by the Shanghai Branch of the People's Bank of China.

Chapter VI Supervision and Inspection Article 37 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall set up a sound internal auditing system and enhance its own ability of self-restraint.

Article 38 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall submit its financial and business statements to the People's Bank of China in accordance with the relevant provisions.

Article 39 The People's Bank of China and its Shanghai Branch shall have the right to examine and audit the business and financial status of a foreign-capital financial institution or of a Chinese-foreign equity joint financial institution.

Chapter VII Dissolution and Liquidation Article 40 If a foreign-capital financial institution or a Chinese-foreign equity joint financial institution is to terminate voluntarily its business activities, it shall, 30 days prior to the date of termination thereof, submit an application in writing to the People's Bank of China and shall, after such termination is approved by the People's Bank of China, effect its dissolution and liquidation.

Article 41 In the event that a foreign-capital financial institution or a Chinese- foreign equity joint financial institution should become insolvent, the People's Bank of China shall order it to suspend its business and shall set a deadline for it to clear its liabilities. If such an institution wishes to resume its business after recovering its solvency within the prescribed period of time for the clearing of its liabilities, it shall apply to the People's Bank of China for approval.

Article 42 With respect to a foreign-capital financial institution or a Chinese- foreign equity joint financial institution which is to terminate voluntarily its business activities or which has been ordered to suspend its business in accordance with the law, its dissolution and liquidation shall be effected in accordance with the relevant provisions of the People's Republic of China.

Article 43 A foreign-capital financial institution or a Chinese-foreign equity joint financial institution which is still in the process of clearing its liabilities may redeem the capital stock and pay dividends only after it has paid in full all the taxes and liabilities.

Article 44 Upon completion of liquidation, a foreign-capital financial institution or a Chinese-foreign equity joint financial institution shall, within the prescribed period of time, undertake the procedures with the original registration authority to nullify its registration.

Chapter VIII Provisions of Penalties Article 45 If, in violation of the provisions in Chapter II of these Measures, a foreign-capital financial institution or a Chinese-foreign equity joint financial institution is set up without authorization, the People's Bank of China shall have the right to order it to suspend its business, confiscate its illegal earnings, and impose a fine in foreign exchange equivalent to 50,000 to 100,000 Renminbi yuan.

Article 46 If, in violation of the provisions in Chapter IV of these Measures, a foreign-capital financial institution or a Chinese-foreign equity joint financial institution engages in business operations beyond the authorized scope, the People's Bank of China and its Shanghai Branch shall have the right to order it to suspend these unauthorized business activities, confiscate in accordance with the law the illegal earnings derived thereform, and impose a fine in foreign exchange equivalent to 10,000 to 50,000 Renminbi yuan.

Article 47 If a foreign-capital financial institution or a Chinese-foreign equity joint financial institution violates the provisions in Chapter V of these Measures, the People's Bank of China and its Shanghai Branch shall have the right to order it to make corrections and adjustments or make up the deficiency and shall, in accordance with the seriousness of the case, impose a fine in foreign exchange equivalent to 5,000 to 30,000 Renminbi yuan.

Article 48 If, in violation of the provisions in Chapter VI of these Measures, a foreign-capital financial institution or a Chinese-foreign equity joint financial institution fails to submit the statements required within the prescribed period of time or defies supervision and examination, the People's Bank of China and its Shanghai Branch shall, in accordance with the seriousness of the case, give a warning, circulate a notice of reprimand, or impose a fine in foreign exchange equivalent to 3,000 to 10,000 Renminbi yuan.

Article 49 If a foreign-capital financial institution or a Chinese-foreign equity joint financial institution violates these Measures, to a serious extent, the People's Bank of China shall order it to suspend its business activities and shall, in an extreme case, order it to disband.

Chapter IX Supplementary Provisions Article 50 Financial institution with overseas-Chinese capital and financial institutions with capital from the regions encompassing Hong Kong, Macao and Taiwan shall be governed with reference to these Measures.

Article 51 Any foreign branch bank already established in the Shanghai Municipality prior to the promulgation of these Measures shall, in accordance with these Measures, make up for the establishment and registration procedures.

With respect to a foreign branch bank which fails to conform to the relevant provisions of these Measures, the Shanghai Branch of the People's Bank of China shall set a deadline for it to make adjustments.

Article 52 The People's Bank of China shall be responsible for the interpretation of these Measures and shall formulate specific provisions in accordance with these Measures.

Article 53 These Measures shall go into effect as of the date of promulgation.