Administration of Securities Investments in China by Qualified Foreign Institutional Investors Tentative Measures

Article 3: A QFII shall appoint a domestic commercial bank to act as the custodian of its assets and appoint a domestic securities company to handle its domestic securities trading activities.

Article 4: QFIIs must abide by Chinese laws, regulations and other relevant provisions.

Article 5: The CSRC and SAFE will oversee according to law the securities investment activities carried out by QFIIs in China.

PART TWO: CONDITIONS FOR QUALIFICATION AND Measures FOR EXAMINATION AND APPROVAL

Article 6: To apply for QFII status, the applicant shall meet the following conditions:

(1) to have a stable, healthy financial position and a good credit rating, to meet conditions such as those for asset value prescribed by the CSRC, and to have risk monitoring indicators that conform to the requirements of the laws and the securities regulator of the country or region in which it is located;

(2) to have business personnel who meet the relevant business qualification requirements of the country or region in which the applicant is located;

(3) to have a sound corporate governance structure and a comprehensive internal control mechanism, to carry on business in compliance with law, and not to have received any major punishment during the preceding three years from the regulator of the country or region in which it is located;

(4) to be located in a country or region that has sound legal and regulatory systems, and the securities regulator of which has entered into a memorandum of understanding with the CSRC concerning regulatory cooperation and maintains an effective regulatory cooperation relationship with the CSRC; and

(5) to meet other conditions prescribed by the CSRC in accordance with the principle of prudent regulation.

Article 7: The conditions for asset value, etc. mentioned in the preceding paragraph are as follows:

for fund management institutions, to have engaged in fund business for not less than five years and to have managed assets of not less than US$10 billion in the most recent fiscal year;

for insurance companies, to have engaged in insurance business for not less than 30 years, to have paid-up capital of not less than US$1 billion and to have managed securities assets of not less than US$10 billion in the most recent fiscal year;

for securities companies, to have engaged in securities business for not less than 30 years, to have paid-up capital of not less than US$1 billion and to have managed securities assets of not less than US$10 billion in the most recent fiscal year;

for commercial banks, to have had total assets listed within the world's top 100 and to have managed securities assets of not less than US$10 billion during the most recent fiscal year.

The CSRC may adjust the above-mentioned conditions for asset value, etc. depending on the development of the securities market.

Article 8: When applying for QFII status and an investment quota, the applicant shall submit the following documents through the custodian to, respectively, the CSRC and SAFE:

(1) the application document (including the applicant's basic details, investment quota to be applied for, investment plan, etc.);

(2) documents to show that the applicant meets the conditions specified in Article 6 hereof;

(3) the draft custody agreement to be entered into with the custodian;

(4) audited financial statements for the most recent three years;

(5) a description of the sources of funding and a written undertaking not to withdraw the investments before the end of the period approved;

(6) the applicant's power of attorney; and

(7) other documents requested by the CSRC or SAFE.

Those of the documents specified in the preceding paragraph that are in a foreign language must be accompanied by a Chinese translation or Chinese summary.

Article 9: The CSRC will render a decision to approve or not to approve the application within 15 working days after the date on which it receives a complete set of the application documents. If the CSRC decides to approve the application, it will issue a securities investment business permit. If the CSRC decides not to approve the application, it will notify the applicant in writing.

Article 10: After the applicant has received the securities investment business permit, it shall apply through the custodian to SAFE for an investment quota.

SAFE shall render a decision to approve or not to approve the application within 15 working days after the date on which it receives a complete set of the application documents. If SAFE decides to approve the application, it shall notify the applicant in writing of the approved investment quota and issue a foreign exchange registration certificate. If SAFE decides not to approve the application, it shall notify the applicant in writing.

If the applicant fails to obtain a foreign exchange registration certificate within one year after it receives the securities investment business permit, its securities investment business permit will automatically become void.

Article 11: In order to attract medium- and long-term investment, institutions that manage closed-end Chinese funds or pension, insurance or mutual funds with a good investment record in other markets and that conform to Article 6 hereof will be given priority consideration.

PART THREE: CUSTODY, REGISTRATION AND SETTLEMENT

Article 12: A custodian shall meet the following conditions:

(1) to have a dedicated fund custody department;

(2) to have paid-up capital of not less than
Rmb8 billion;

(3) to have an adequate number of full-time personnel familiar with custody business;

(4) to be able to keep safe custody of the entire assets of the fund;

(5) to have the ability to carry out secure, highly efficient clearing and settlement;

(6) to be qualified as a designated foreign exchange bank and qualified to operate renminbi business; and

(7) to have no record of any major violation of exchange control regulations during the most recent three years.

Those China branches of foreign-invested commercial banks that have continuously operated in China for not less than three years may apply to become custodians. The calculations to determine whether they meet the paid-up capital requirement shall be performed on the paid-up capital of their foreign head offices.

Article 13: Examination and approval must be carried out by the CSRC, the People's Bank of China and SAFE before the status of a custodian can be obtained.

Article 14: To apply for the status of a custodian, a domestic bank shall submit the following documents to the CSRC, the People's Bank of China and SAFE:

(1) an application;

(2) a duplicate of its financial business permit;

(3) the management system for the business of custodianship;

(4) documents evidencing a highly efficient, fast information technology system; and

(5) other documents requested by the CSRC, the People's Bank of China or SAFE.

The CSRC will examine the application documents and issue a decision to approve or not to approve the application in conjunction with the People's Bank of China and SAFE.

Article 15: A custodian shall perform the following duties:

(1) to keep safe all of the assets placed in its custody by the QFII;

(2) to handle the relevant foreign exchange settlement, sale, receipt and payment business and renminbi fund settlement business of the QFII;

(3) to supervise the QFII's investment operations, and to timely report to the CSRC and SAFE if the QFII's investment instructions violate laws or regulations;

(4) within two working days of remittance of principal into China or remittance of principal or earnings out of China by the QFII, to inform SAFE of the particulars of the funds so remitted and the settlement or sale of foreign exchange by the QFII;

(5) within five working days after the end of each month, to report to the CSRC and SAFE the details of payments made into and out of the QFII's special renminbi account;

(6) within three months after the conclusion of each fiscal year, to prepare an annual financial report on the particulars of the QFII's securities investment activities in China during the previous year and to submit the same to the CSRC and SAFE;

(7) to keep for a period of not less than 15 years relevant information such as records of remittances into and out of China, the conversion of funds, the receipt and payment of foreign exchange, and the receipt and payment of funds by the QFII; and

(8) other duties specified by the CSRC, the People's Bank of China and SAFE in accordance with the principle of prudential regulation.

Article 16: A custodian must strictly separate its own assets from the assets entrusted to its management.

A custodian must establish separate accounts for different QFIIs, and implement management on an account by account basis for the assets entrusted to its management.

Each QFII may appoint only one custodian.

Article 17: A QFII shall appoint a custodian to apply on its behalf to the securities registration and settlement institution for the opening of a securities account. When acting as an agent in applying to open a securities account, the custodian shall produce valid documentation such as the QFII's power of attorney and securities investment business permit, etc., and report the relevant particulars to the CSRC for the record within five working days after the securities account has been opened.

A QFII shall appoint a custodian to apply on its behalf to the securities registration and settlement institution for the opening of a renminbi fund settlement account to be used for carrying out fund settlement with the securities registration and settlement institution. The custodian shall be in charge of the settlement of funds for securities investments in China by QFIIs, and shall report the relevant particulars to the CSRC and SAFE for the record within five working days after the renminbi fund settlement account has been opened.

PART FOUR: INVESTMENT OPERATIONS

Article 18: Within the approved investment quota, a QFII may invest in the following renminbi-denominated financial instruments:

(1) shares other than domestically listed foreign-invested shares that are listed for trading on the stock exchange;

(2) treasury bonds listed for trading on the stock exchange;

(3) convertible bonds and enterprise bonds listed for trading on the stock exchange; and

(4) other financial instruments approved by the CSRC

Article 19: A QFII may appoint a securities company established in China to carry out securities investment management in China.

Each QFII may appoint only one investment institution.

Article 20: The securities investments in China made by a QFII shall comply with the following provisions:

(1) the percentage of shares held by a single QFII in any one listed company may not exceed 10% of the listed company's total shares;

(2) the aggregate percentage of shares held by all QFIIs in any one listed company may not exceed 20% of the listed company's total shares.

The CRSC may adjust the above-mentioned percentages in the light of the development of the securities market.

Article 21: The securities investments made in China by QFIIs shall conform to the requirements of the Foreign Investment Industrial Guidance Catalogue.

Article 22: The CSRC shall keep information such as the transaction records and transaction activities of QFIIs for a period of not less than 15 years.

PART FIVE: FUND MANAGEMENT

Article 23: Upon approval by SAFE, a QFII shall open a special renminbi account with the custodian.

Within five working days after the special renminbi account has been opened, the custodian shall report the relevant particulars to the CSRC and SAFE for the record.

Article 24: The scope of receipts of a special renminbi account shall include the settlement of foreign exchange funds (foreign exchange funds sourced from abroad and foreign exchange funds cumulatively settled may not exceed the approved investment quota), income from sales of securities, cash dividends, interest from current deposits and interest on bonds. The scope of payments from a special renminbi account shall include payments for the purchase of securities (including stamp tax, service fees, etc.), custody fees and management fees incurred in China and funds for purchasing foreign exchange (to be used for remitting principal and earnings out of China).

Funds in special renminbi accounts may not be used to grant loans or provide security.

Article 25: A QFII shall remit the principal within three months after the CSRC has issued the securities investment business permit. After the entire amount has been settled as foreign exchange, it shall be paid directly into the special renminbi account. The principal remitted into China by the QFII shall be in a freely convertible currency approved by SAFE and may not exceed the approved quota amount.

If a QFII fails to remit the principal in full within three months after it obtains the foreign exchange registration certificate, the amount actually remitted shall be the approved quota. The balance between the approved quota and the amount actually remitted may not be remitted into China until a new investment quota has been obtained upon approval.

Article 26: If a QFII is an institution that manages a closed-end Chinese fund, it may entrust the custodian to apply to SAFE to purchase foreign exchange in order to remit the principal out of China in instalments from the fourth year after the principal was remitted into China on the strength of the specified documents. The amount of each instalment of the principal remitted out of China may not exceed 20% of the entire amount of the principal, and the period between two consecutive outward remittances may not be less than one month.

Other QFIIs may entrust the custodian to apply to SAFE to purchase foreign exchange in order to remit the principal out of China in instalments from the second year after the principal was remitted into China on the strength of the specified documents. The amount of each instalment of the principal remitted out of China may not exceed 20% of the entire amount of the principal, and the period between two consecutive outward remittances may not be less than three months.

The foreign beneficiary of the above-mentioned remittances shall be the relevant QFII.

Article 27: A QFII who remitted its investment quota principle into China less than one year but more than three months previously may assign its investment quota to another QFII or another applicant who conforms with the provisions of Article 6 hereof upon submission of the transfer application and the transfer contract to and approval by the CSRC and SAFE.

If, after the transferee has obtained a quota approved by SAFE and a securities investment business permit, the value of the transferred assets is lower than the quota approved by SAFE, it may remit the difference in principal into China.

Article 28: If, when a QFII remits all or part of its principal out of China, it needs to remit principal back into China, it shall apply for a new investment quota.

Article 29: If a QFII needs to purchase foreign exchange to remit out of China the realized after-tax earnings of the preceding fiscal year that have been audited by a China certified public accountant, it shall entrust the custodian to apply to SAFE 15 working days in advance on the strength of the following documents:

(1) the remittance application;

(2) the financial statement for the year in which the earnings were generated;

(3) the audit report issued by a China certified public accountant;

(4) the resolution concerning distribution of the earnings or other valid legal document(s);

(5) proof of payment of tax; and

(6) other documents requested by SAFE.

For the purposes of the preceding paragraph, the foreign beneficiary shall be the relevant QFII.

Article 30: SAFE may adjust the time limit for the remittance out of China of the principal and realized earnings of QFIIs, depending on the need to balance State foreign exchange receipts and payments.

PART SIX: SUPERVISION AND ADMINISTRATION

Article 31: The CSRC and SAFE will carry out annual inspection of the securities investment business permits and foreign exchange registration certificates of QFIIs.

Article 32: The CSRC, the People's Bank of China and SAFE may require a QFII, custodian, securities company, stock exchange and/or securities registration and settlement institution to provide information relating to the QFII's investment activities in China; and, if necessary, may conduct on site investigations.

Article 33: A stock exchange or securities registration and settlement institution may, depending on the circumstances, formulate business rules relating to securities investments in China by QFIIs or may amend existing business rules, which shall be implemented after they have been submitted to and approved by the CSRC.

Article 34: A QFII shall report to the CSRC, the People's Bank of China and SAFE for the record within five working days after the occurrence of:

(1) a change of custodian;

(2) a change of legal representative;

(3) a change of controlling shareholder;

(4) an adjustment in its registered capital;

(5) litigation or other major matters;

(6) a major punishment imposed outside China; or

(7) other circumstances specified by the CSRC or SAFE.

Article 35: A QFII shall apply for a new securities investment business permit if:

(1) it changes its name;

(2) it is merged by absorption with another institution; or

(3) in other circumstances specified by the CSRC or SAFE.

Article 36: A QFII shall return its securities investment business permit and foreign exchange registration certificate to, respectively, the CSRC and SAFE if:

(1) it has remitted all of the principle out of China;

(2) it assigns its investment quota;

(3) the institution with legal person status is to be dissolved, commences bankruptcy proceedings or has its assets being taken possession of by a receiver; or

(4) in other circumstances specified by the CSRC or SAFE.

If a securities investment business permit or foreign exchange registration certificate does not pass the annual inspection specified in Article 31 hereof, it shall automatically become invalid, and the QFII shall return its securities investment business permit and foreign exchange registration certificate to, respectively, the CSRC and SAFE, in accordance with the provisions of the preceding paragraph.

Article 37: If a QFII, custodian or securities company, etc. violates these Measures, the CSRC, the People's Bank of China and/or SAFE will issue a warning or impose a fine in accordance with their respective functions and powers, provided that no more than two administrative punishments may be imposed for any single offence.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 38: These Measures shall apply to the engagement in securities investment carried out in the mainland by institutional investors established in the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan.

Article 39: These Measures shall be implemented as of December 1 2002.