Regulations of the People's Republic of China Governing FinancialInstitutions with Foreign Capital

Regulations of the People's Republic of China Governing FinancialInstitutions with Foreign Capital (Promulgated on February 25, 1994) Whole document Regulations of the People's Republic of China Governing Financial Institutions with Foreign Capital (Promulgated on February 25, 1994) Chapter I General Principles Article 1 These Regulations are formulated in order to meet the needs of opening to the outside world and economic development, strengthen and improve the management of financial institutions with foreign capital.

Article 2 Financial institutions with foreign capital mentioned in these Regulations refer to the following financial institutions that are established and operate in China upon approval in accordance with the relevant laws and regulations of the People's Republic of China: (1) subsidiary banks incorporated by foreign capital whose head offices are in China (hereinafter referred to as foreign banks); (2) branches of foreign banks in China (hereinafter referred to as foreign bank branches); (3) banks incorporated jointly by foreign and Chinese equity institutions (hereinafter referred to as equity joint-venture banks); (4) finance companies incorporated by foreign capital whose head offices are in China (hereinafter referred to as foreign finance companies); and (5) finance companies incorporated jointly by foreign and Chinese financial institutions (hereinafter referred to as equity joint-venture finance companies).

The State Council determines the locations that are open to financial institutions with foreign capital.

Article 3 Financial institutions with foreign capital shall abide by the laws and regulations of the People's Republic of China, and shall not engage in activities that harm the social and public interests of the People's Republic of China.

The legitimate business operation and lawful rights and interests of the financial institutions with foreign capital shall be protected by the laws of the People's Republic of China.

Article 4 The People's Bank of China is the sole regulatory authority responsible for the regulation and supervision of the financial institutions with foreign capital; the branches of the People's Bank of China exercise routine regulation and supervision of the financial institutions with foreign capital in their jurisdiction.

Chapter II Establishment and Registration Article 5 The minimum registered capital for a foreign bank or an equity joint-venture bank shall be in amount of a freely convertible currency equivalent to CNY 300 million yuan; and that for a foreign finance company or an equity joint-venture finance company shall be in amount of a freely convertible currency equivalent to CNY 200 million yuan, of which, the paid-up capital shall not be below 50 percent of the registered capital.

The head office of a foreign bank branch shall allocate a working capital in a freely convertible currency equivalent to no less than CNY 100 million yuan to its branches without any repayment or recompense.

Article 6 The applicant for the establishment of a foreign bank or a foreign finance company is subject to the following conditions: (1) the applicant is a financial institution; (2) the applicant has maintained a representative office in China for two years or longer; (3) the total assets of the applicant at the end of the year prior to its application are not be below US $ 10 billion; and (4) there is a sound system for financial regulation and supervision in the home country or region of the applicant.

Article 7 To establish a foreign bank branch, the applicant is subject to the following conditions: (1) the applicant has maintained a representative institution in China for two years or longer; (2) the total assets of the applicant at the end of the year prior to the application shall not be below US $ 20 billion; and (3) there is a sound system for financial regulation and supervision in the home country or region of the applicant.

Article 8 To establish an equity joint-venture bank or equity joint-venture finance company, the applicant is subject to an the following conditions: (1) each partner to the joint-venture is a financial institution; (2) the foreign partner has a representative institution in China; (3) the total assets of the foreign partner at the end of the year prior to the application are not be below US $ 10 billion; and (4) there is a sound system for financial regulation and supervision in the home country or region of the applicant.

Article 9 The applicant for the establishment of a foreign bank or a foreign finance company shall submit to the People's Bank of China a written application together with the following documents: (1) a letter of application specifying: the name of the foreign bank or finance company to be set up, the registered capital and paid-up capital, the intended business activities, etc., (2) a feasibility study; (3) the articles of association of the intended foreign bank or finance company; (4) a photocopy of the business license issued by the relevant regulatory authorities of the country or region in which the applicant is incorporated; (5) the annual reports of the applicant for the last three years; and (6) other documents required by the People's Bank of China.

Article 10 To establish a foreign bank branch, the head office of the foreign bank shall submit to the People's Bank of China a written application together with the following documents: (1) the application signed by the legal representative specifying: the name of the branch to be set up by the foreign bank, the amount of working capital free from repayment allocated by the parent company, the intended business activities, etc.; (2) a photocopy of the business license issued by the relevant regulatory authorities of the country or region in which the applicant is incorporated; (3) the annual reports of the applicant for the last three years; and (4) other documents required by the People's Bank of China.

Article 11 To establish an equity joint-venture bank or a finance company, the partners to the equity joint-venture shall submit to the People's Bank of China a jointly written application together with the following documents: (1) the application for the establishment of an equity joint-venture bank or a finance company specifying: the name of the intended equity joint-venture bank or finance company to be set up, the names of all the partners to the joint-venture, the amount of the registered capital and paid-up capital, the proportion of the capital contributions of all parties to the joint-venture, the intended business activities, etc.; (2) a feasibility study; (3) the contract for the equity joint-venture and the Articles of Association of the joint venture bank or finance company to be set up; (4) a photocopy of the business licenses issued by the relevant regulatory authorities of the country or region in which the applicants are incorporated; (5) the annual reports of the applicants for the last three years; and (6) other documents required by the People's Bank of China.

Article 12 Except the annual reports, all documents required in Article 9, Article 10 and Article 11 hereof, if written in a foreign language, shall have a Chinese translation attached.

Article 13 The applicant shall be given a formal application form when the People's Bank of China approves the application for the establishment of a financial institution with foreign capital after preliminary examination.

The application shall be considered rejected if the applicant fails to receive the formal application form within 90 days from the date of application.

Article 14 The applicant shall, within 60 days from the date of receiving the formal application form, present to the People's Bank of China the completed form and the following documents for ratification: (1) a list of the key executives of the intended financial institution with foreign capital and their resumes; (2) a power of attorney granted to the key executive officer of the intended financial institution with foreign capital; (3) in case of applying for setting up a foreign bank branch, a letter of guarantee from the head office specifying the responsibility for the tax and debt obligations incurred by the foreign bank branch; and (4) other documents required by the People's Bank of China.

Article 15 The financial institution with foreign capital shall, within 30 days from the date of receiving the approval document of the People's Bank of China, raise and transfer to China the required paid-up capital or working capital, and then register with the industry and commerce administration authorities in accordance with law after the transferred capital is verified by a certified public accountant registered in China. It shall also register with a taxation office, in accordance with law, within 30 days from the date when it enters into operation. Article 16 The financial institution with foreign capital shall apply to the State Administration of Exchange Control for the issuance of the Foreign Exchange Operation License within 30 days from the date of approval by the People's Bank of China.

Chapter III Scope of Business Article 17 Subject to approval by the People's Bank of China, a foreign bank, a foreign bank branch or an equity joint-venture bank shall be allowed to conduct some or all of the following business activities: (1) foreign currency deposit-taking; (2) foreign currency lending; (3) foreign currency bill-discounting; (4) approved foreign exchange investment; (5) foreign exchange remittance; (6) foreign exchange guarantee; (7) import and export settlement; (8) foreign currency dealing and brokerage; (9) exchange of foreign currencies and bills denominated in foreign currency; (10) foreign currency credit card payment; (11) custody and safe-deposit box service; (12) credit verification and consultation; and (13) approved business activities in domestic currency and other foreign currencies.

Article 18 Subject to approval by the People's Bank of China, a foreign finance company or an equity joint-venture finance company shall be allowed to conduct some or all of the following business activities; (1) foreign currency deposit of US $ 100,000 in minimum for each deposit with a maturity of three months or longer; (2) foreign currency lending; (3) foreign currency bill-discounting; (4) approved foreign exchange investment; (5) foreign exchange guarantee; (6) foreign currency dealing and brokerage; (7) credit verification and consultation; (8) foreign exchange trust business; and (9) approved business activities in domestic currency and other foreign currencies.

Article 19 The foreign currency deposit-taking specified in this chapter refers to the following deposits denominated in foreign currencies: (1) inter-bank deposits both in China and abroad; (2) deposits taken from the non-bank clients located outside China; (3) deposits taken from foreigners in China; (4) deposits taken from overseas Chinese and compatriots from Hong Kong, Macao, and Taiwan; (5) deposits taken from enterprises with foreign investment in China; (6) re-deposits as occurred as a result of lending by financial institutions with foreign capital to non-enterprises with foreign investment; and (7) other approved foreign exchange deposits.

Article 20 The foreign exchange remittance specified in this chapter refers to the inward remittance from abroad and the outward remittance by enterprises with foreign investment, foreigners, overseas Chinese and compatriots form Hong Kong, Macao, and Taiwan on the mainland of China.

Article 21 The import and export settlement specified in this chapter refers to such business as the import and export settlement of enterprises with foreign investment, the export settlement of approved non-enterprises with foreign investment, and the import settlement occurred as a result of their lending conducted by foreign banks, foreign bank branches, and equity joint-venture banks.

Chapter IV Supervision and Administration Article 22 The deposit and lending rates as well as various types of fees charged by a financial institution with foreign capital shall be determined by itself in accordance with the relevant rules and regulations of the People's Bank of China.

Article 23 To conduct deposit-taking business, a financial institution with foreign capital is required to deposit reserves with a local branch of the People's Bank of China. The reserve ratio shall be determined, and adjusted when necessary, by the People's Bank of China. The deposit reserves are free of interest.

Article 24 Thirty percent of the working capital of a foreign bank branch shall be maintained in the form of interest-bearing assets designated by the People's Bank of China, including the deposits held with the banks designated by the People's Bank of China.

Article 25 The total assets of a foreign bank, an equity joint-venture bank, a foreign finance company, or a equity joint-venture finance company shall not exceed twenty times the sum of its paid-up capital plus reserves.

Article 26 The loans granted to an enterprise and its related enterprises by a foreign bank, an equity joint-venture bank, a foreign finance company, or an equity joint-venture finance company shall not exceed thirty percent of the sum of its paid-up capital plus reserves, except those specially approved by the People's Bank of China.

Article 27 The gross investment of a foreign bank, an equity joint-venture bank, a foreign finance company, or an equity joint-venture finance company shall not exceed thirty percent of the sum of its paid-up capital plus reserves, with the exception of that made to a financial institution and approved by the People's Bank of China.

Article 28 The fixed assets maintained by a foreign bank, an equity joint-venture bank, a foreign finance company, or an equity joint-venture finance company shall not exceed forty percent of the sum of its paid-up capital plus reserves.

Article 29 A financial institution with foreign capital shall ensure the liquidity of its assets. The specific requirements to financial institutions with foreign capital on their assets, liquidity shall be made separately by the People's Bank of China.

Article 30 Deposits taken from within the territory of the People's Republic of China by a financial institution with foreign capital shall not exceed forty percent of its total assets.

Article 31 A financial institution with foreign capital shall make provisions fund for non-performing (bad) assets in accordance with the relevant procedures as stipulated by the State.

Article 32 A foreign bank, an equity joint-venture bank, a foreign finance company, or an equity joint-venture finance company whose paid-up capital is below the level of its registered capital, shall supplement the paid-up capital by transferring twenty-five percent of its post-tax profit each year until the sum of the paid-up capital plus reserves equals to the registered capital.

Article 33 A financial institution with foreign capital shall employ at least one Chinese citizen as its senior executive.

Article 34 A financial institution with foreign capital shall employ certified public accountants registered in China. Such employment shall be subject to the confirmation by the relevant local branch of the People's Bank of China.

Article 35 A financial institution with foreign capital shall gain approval from the People's Bank of China and conduct the related registration with an industry and commerce administration department in accordance with the law in any of the following cases: (1) establishment of an affiliate; (2) adjustment or transfer of registered capital, increase or decrease of working capital; (3) change of the institution's name or business address; and (4) replacement of senior executives.

Article 36 A financial institution with foreign capital shall submit to the People's Bank of China and its related branches financial statements and other relevant data.

Article 37 The People's Bank of China and its branches have the right to examine and audit the operational management and financial situation of a financial institution with foreign capital.

Chapter V Dissolution and Liquidation Article 38 In case of a self-termination of its business activities, a financial institution with foreign capital shall submit a written application to the People's Bank of China 30 days before the termination, and will be dissolved and liquidated after the Bank's examination and approval.

Article 39 The People's Bank of China may order a financial institution with foreign capital which is unable to meet its liabilities to cease operation and make repayment within a limited period of time. If it has recovered redeemability and wants to resume business within the time limit, it shall apply to the People's Bank of China for resuming business; if it fails to recover redeemability beyond the time limit, it shall enter into liquidation.

Article 40 In case of the termination of a financial institution with foreign capital due to dissolution, cancellation under the law or because of the declaration of bankruptcy, matters concerning its liquidation shall be handled under the stipulations of relevant Chinese laws and regulations.

Article 41 Upon the completion of liquidation, a financial institution with foreign capital shall reregister itself at the original registration agency within the legal time limit.

Chapter VI Penalties Article 42 In case of a financial institution with foreign capital established in violation of the stipulations of Chapter II hereof and without approval, the People's Bank of China shall outlaw it, confiscate its illegal gains and may, together, fine an amount of foreign exchange equivalent to CNY 50,000-100,000 yuan.

Article 43 In case of a financial institution with foreign capital conduction the business activities beyond its approved business scope and in violation of the stipulations of Chapter III hereof, the People's Bank of China or its relevant branch institutions shall order it to cease those business activities which are beyond its approved business scope and confiscate its illegal receipts from the non-approved business activities, and a penalty of an amount of foreign currency equivalent to CNY 10,000-50,000 yuan shall also be imposed.

Article 44 In case of a financial institution with foreign capital conducting the business activities in violation of the relevant stipulations of Chapter IV hereof, the People's Bank of China or its relevant branches are entitled to order it to rectify, readjust its business or supplement sufficient funds accordingly, and a penalty of an amount of foreign currency equivalent to CNY 5,000-30,000 yuan shall also be imposed.

Article 45 In case of a failure of a financial institution with foreign capital to render financial statements and related data in violation of the relevant stipulations of Chapter IV hereof, the People's Bank of China or its relevant branches shall serve a warning, circulate a notice, and demand the submission of them within a time limit, and a penalty of an amount of foreign currency equivalent to CNY 3,000-20,000 yuan shall also be imposed.

Article 46 In case of a failure to comply with these regulations, a financial institution with foreign capital shall not only be penalized under the relevant stipulations of Article 43, Article 44 and Article 45 of this Chapter, but it may also be ordered to cease operation, and even have its business license suspended by the People's Bank of China where serious offenses are committed.

Article 47 In case of breach of other laws and regulations of the People's Republic of China, a financial institution with foreign capital shall be penalized by the relevant authorities according to law.

Chapter VII Supplementary Provisions Article 48 These Regulations are also applicable to the financial institutions established and operated on the mainland of China by financial institutions from such regions as Hong Kong, Macao, and Taiwan.

Article 49 The regulatory procedures for representative offices established in China by financial institutions with foreign capital are to be formulated separately by the people's Bank of China.

Article 50 The People's Bank of China shall be responsible for the interpretation of these Regulations and for the formulation of the detailed rules for the implementation of these Regulations.

Article 51 These Regulations are effective as of 1 April 1994. The Regulations Governing Foreign Banks and Sino-Foreign Equity Joint-Venture Banks in the Special Economic Zones of the People's Republic of China promulgated by the State Council on 2 April 1995 and the Procedure Regulating Financial Institutions with Foreign Capital and Sino-Foreign Equity Joint-Venture Financial Institutions in Shanghai ratified by the State Council on 7 September 1990 and issued by the People's Bank of China on 8 September 1990 are to be abolished simultaneously.