Operational Guidelines for the Private Equity Investment Trust Business of Trust Companies

Article 3: If a trust company wishes to engage in the private equity investment trust business, it shall comply with the following provisions:

(1) having a sound corporate governance structure;

(2) having sound internal control systems and risk management systems;

(3) having trust managers and relevant working personnel who are appropriate for the equity trust investment business, and having at least five persons responsible for equity investment trusts, of whom at least ¹ shall have at least two years of equity investment or related business experience;

(4) the status of its own assets and its liquidity being good and complying with regulatory requirements; and

(5) other conditions as specified by the CBRC.

Article 4: A trust company shall formulate the procedures and risk management systems for its private equity investment trust business and implement the same after approval thereof by its board of directors.

Article 5: The risk management system for a private equity investment trust shall include but not be limited to the following:

(1) the proposal for the target enterprise to be invested in;

(2) the onsite due diligence investigation of the target enterprise;

(3) the investment decision procedure and limit management;

(4) the investment in the target enterprise;

(5) the management of the target enterprise; and

(6) the mechanism for withdrawal from the equity of the target enterprise.

Article 6: A trust company shall establish an employee constraint and incentive mechanism appropriate for the private equity investment trust business.

Article 7: When engaging in private equity investment trust business, a trust company shall comply with the following provisions:

(1) complying with relevant laws and regulations, and the objective of the trust not harming the public interest;

(2) handling trust affairs in accordance with the private equity investment trust documents;

(3) matching of the trust term and the arrangement for the withdrawal from the equity, relative stability of the equity holding term, and specifying the arrangement for withdrawal from the equity in the trust documents; and

(4) if it is to use its own funds to participate in the private equity investment trust plan, complying with relevant provisions on the administration of the net capital of trust companies, not transferring its beneficial rights during the life of the trust and not directly or indirectly using such beneficial rights as the subject matter for financing purposes.

Article 8: When a trust company engages in private equity investment trust business, it shall prepare a report on the investment philosophy and strategy of the trust plan, the criteria for selection of the project, the industry value, the candidate enterprises and the methodology for the analysis of risk factors, and such report shall be subject to the approval of the company's trust committee.

Article 9: When a trust company is to use the funds under a private equity investment trust plan to invest in equity, it shall conduct a due diligence investigation of the development prospects, corporate governance, equity structure, management team, asset position, business position, financial position, legal risks, etc. of the investment target.

Article 10: A trust company shall prepare investment decision reports based on the principle of due diligence and proceed with formal implementation only after approval of the decision making procedure.

Article 11: A trust company shall itself exercise the relevant shareholder rights in the investee enterprise under the trust plan in its own name in accordance with the trust documents without interference from the settlor or beneficiary.

Article 12: The trust company shall promote the improvement of the governance structure of the investee enterprise under the trust plan through the effective exercise of its shareholder rights so as to improve the enterprise's business systems and corporate management capabilities and increase the enterprise's value.

Article 13: A trust company shall disclose accurate and complete information on a private equity investment trust plan in a timely manner in accordance with laws, regulations and the trust documents. The information disclosed by the trust company shall comply with relevant guidelines for the contents and format of information disclosure of the CBRC and other regulatory departments.

Article 14: If the equity of, or the bonds issued by, the investment target are quoted or traded on a stock market, property rights trading market or other such active market, the information disclosure by the trust company shall comply with the laws and regulations of the active market regulator and relevant information on the private equity investment trust shall be disclosed to the beneficiary and the regulator in accordance with the law. The term “active markets” mentioned above refers to the concept and scope of application set forth in the Enterprise Accounting Guidelines and the Enterprise Accounting Guidelines – Application Guide issued by the Ministry of Finance.

Article 15: In managing a private equity investment trust plan, a trust company may withdraw from the investment by way of a listing of the equity, a transfer by agreement, a buyback by the investee enterprise, an equity distribution, etc.

If it is to withdraw by way of the listing of the equity, the relevant provisions of the relevant regulatory authority shall be complied with.

Article 16: If the withdrawal from the equity investment under a private equity investment trust plan is to be accomplished other than through the open market, the equity price shall be fair and the trust company shall endeavour to obtain the best returns for the beneficiary.

Article 17: If a trust company uses its own funds to participate in the establishment of a private equity investment trust, its share thereof may not exceed 20% of the property of the trust plan. The funds of the trust company used in the establishment of private equity investment trusts may not exceed 20% of the trust company's net assets.

If a trust company uses its own funds to participate in the establishment of a private equity investment trust, the amount contributed by it and the liability that it bears, etc. shall be specified in the trust documents.

Article 18: When a trust company establishes a private equity investment trust, it shall report the same to the CBRC or its agency within 10 working days after the establishment of the trust plan. The report shall include but not be limited to a feasibility analysis, the trust documents, a risk declaration, the scope of, and plan for, application of the trust property, the principal risks to which the trust plan will be exposed and a risk management explanation, the main contents and format of trust fund management reports, the promotion plan and main promotion details, a brief description and the personnel résumés of the equity investment trust team, etc.

Article 19: When managing a private equity investment trust, a trust company shall apply the trust funds to equity investments as specified in the trust documents and funds that have not been invested in equity may only be invested in low risk high liquidity financial products, such as bonds, money funds, and central bank paper, etc.

Article 20: When managing a private equity investment trust, a trust company may charge management fees and a performance bonus, and may not charge any fees other than such management fees and performance bonus. The method of charging and the percentage of the management fees and performance bonus must be specified in advance in the trust documents, however, the performance bonus may only be charged upon termination of the trust plan and if a profit is realised.

Article 21: After the establishment of a private equity investment trust plan, the trust company shall handle the trust affairs itself, and independently make investment decisions and carry out risk control.

If specified in advance in the trust documents, the trust company may engage a third party to provide investment consultancy services, but the investment consultant may not implement the investment decisions on behalf of the trust company. The trust company shall conduct a due diligence investigation on the basic particulars of the investment consultant's management team and its past performance results and note the same in the trust documents.

Article 22: An investment consultant as mentioned in the preceding Article shall satisfy the following conditions:

(1) holding not less than 10% of the units of the trust plan;

(2) having paid-in capital of not less than Rmb20 million;

(3) having a fixed place of business and the software, hardware and facilities suitable for the business;

(4) having sound internal control systems and investment proposal, due diligence investigation and decision making procedures;

(5) the principal members of its investment consultancy team having not less than three years of experience in equity investment and having a good performance record;

(6) no record of improper activity; and

(7) other conditions as specified by the CBRC.

Article 23: A non-listed enterprise as specified herein shall comply with but not be limited to the following conditions:

(1) being established in accordance with the law;

(2) its core business and development strategy complying with industry and environmental protection policies;

(3) possessing core technologies or an innovative business model, and having high growth;

(4) its de facto controller, shareholders, directors and senior management personnel having a good integrity record, and not having been punished or sanctioned by the relevant regulatory department;

(5) its management team having the knowledge, industry experience and management capabilities appropriate to the performance of its duties; and

(6) there being no direct or indirect affiliation between it and the trust company or the trust company's affiliated persons, except as reported in advance in accordance with CBRC provisions and disclosed in accordance with provisions.

Article 24: The CBRC shall conduct onsite inspections and offsite oversight of the private equity investment trust business of trust companies in accordance with the law and may require trust companies to provide materials relating to their private equity investment trusts.

Article 25: The CBRC shall be in charge of interpreting these Guidelines.

Article 26: These Guidelines shall be effective as of the date of issuance.