Holding Funds in Trust in China

On July 18 2002, the same day that the Administration of the Business of Holding Funds in Trust of Trust and Investment Companies Tentative Procedures (the Tentative Procedures, promulgated by the People's Bank of China) became effective, the first domestic trust plan appeared in Shanghai. The plan, structured by Shanghai AJ Trust & Investment Co., Ltd to help in funding the Shanghai Outer Ring Tunnel Project, launched the appearance and development of a new trust mechanism whereby individual investors are able to inject money into the city's infrastructure projects and other capital-intensive projects. According to the Tentative Procedures, the "business of holding funds in trust" is that in which a grantor, based on his/her confidence in a Trust and Investment Company (TIC), entitles the TIC in its own name to manage, use and dispose of the funds owned by the grantor according to his/her will and for the interests of beneficiaries or for some specific purpose. Also, the Tentative Procedures specify that the TIC can accept the entrustments of two or more grantors and collectively manage, use and dispose of the trust money in accordance with the management methods determined by the grantors or by the TIC on the grantors' behalf. The aforesaid trust plan for the Shanghai Outer Ring Tunnel Project was designed and structured based on the provisions of the Tentative Procedures.

In order to protect the individual investors in trust plans, the Tentative Procedures set out the following:

1. The TIC shall neither represent nor warrant the profitability of the trust funds, nor guarantee the minimal yield.