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CIRCULAR OF THE NATIONAL DEVELOPMENT AND REFORM COMMISSION AND THE STATE ADMINISTRATION OF FOREIGN EXCHANGE CONCERNING THE REGULATION OF THE ARCHIVAL FILING ADMINISTRATION OF ALIENING BAD CLAIMS TO FOREIGN PARTIES BY FINANCIAL INSTITUTIONS

Circular of the National Development and Reform Commission and the State Administration of Foreign Exchange Concerning the Regulation of the Archival Filing Administration of Aliening Bad Claims to Foreign Parties by Financial Institutions

Fa Gai Wai Zi [2007] No.254

The development and reform commissions, economy and trade commissions (economy commission) and the branch bureaus of foreign exchange control of each province, autonomous region, municipality directly under the Central Government, city specifically designated in the state plan and Xinjiang Production and Construction Corps.:

For the purpose of regulating the administration of foreign debts formed in the alienation of bad claims to overseas investors by domestic financial institutions, effectively protecting the lawful rights and interests of investors, improving the disposing efficiency of non-performing assets, actively avoiding and removing the foreign debts risks formed in the disposal process and promoting the sound and orderly development of China's bad assets disposal market, we hereby inform the related matters as follows:

1.

In case a domestic financial institution assumes foreign debts resulted from its alienation of bad claims to an overseas investor, the domestic financial institution shall report such case to the National Development and Reform Commission and the State Administration of Foreign Exchange and put it under the administration of foreign debts according to the provisions of the Interim Measures for Administering Foreign Debts (Order No.28 of the National Development Planning Commission, the Ministry of Finance and the State Administration of Foreign Exchange) by analogy.

2.

The National Development and Reform Commission shall, in collaboration with the State Administration of Foreign Exchange, administer the foreign debts formed from the alienation of bad claims to foreign parties by domestic financial institutions in accordance with China's foreign debt structure, balance of payment position, scale of bad claims and the development of the disposal market.

3.

A domestic financial institution aliening bad claims to foreign parties shall submit the plan of aliening bad claims to foreign parties of the next year to the National Development and Reform Commission prior to November 30 of each year, which shall cover the basic information on the existing bad claims, the bad claims it intends to alien to foreign parties in the next year and the forecasting on the recovery of the bad claims it intends to alien.

4.

According to the Regulation on Financial Asset Management Companies (Order No.297 of the State Council) and the related provisions of the Ministry of Finance and China Banking Regulatory Commission, etc, a domestic financial institution shall conform to the principles of openness, impartiality and fairness in aliening bad claims to foreign parties. Prior to an act of aliening bad claims to foreign parties, a domestic financial institution shall publicize an explicit disposal announcement at a news media of economic or comprehensive category at the provincial level or above. By principle, all alienations shall be conducted in public ways such as bidding, auction and public price competition, etc, and the alienation price shall be paid off by the related overseas investors once and for all.

5.

The bad claims to be aliened to foreign parties may not involve in any claim with the Chinese government of any level or its administrative department as the debtor or guaranteed by it, any claim of any enterprise falling within the prohibited category of the Catalogue of Industries for Guiding Foreign Investment or involving any industry of national security, or any other claim forbidden by laws and regulations from being aliened to foreign parties.

6.

No overseas investor concerned with the alienation of bad claims may viciously release information to the outside or conduct any behavior that infringes upon China's foreign debt service credibility, or recover debts from the Chinese government of any level or its the administrative department in any way.

7.

A domestic financial institution shall, within 20 workdays as of the conclusion of an agreement on aliening bad claims to foreign parties, submit the related information (in triplicate) about the alienation of bad claims to the National Development and Reform Commission for archival filling and send copies to the Ministry of Commerce and China Banking Regulatory Commission simultaneously. The archival materials shall cover the following items:

(1)

circumstances about the bad claims to be aliened to foreign parties (paper principal, total amount of interest, regional distribution);

(2)

agreement on the alienation to foreign parties;

(3)

photocopy of the disposal announcement as publicized in news media;

(4)

attested registration certificate of the overseas investor, the related written commitment of the overseas investor and the documentary evidences on the credit status and performance of the overseas investor. In case any bad claim is purchased by an overseas investor in the form of foreign special-purpose company and it fails to abundantly testify the credit and performance situations of the overseas investor, the documentary evidences on the holding parent company shall be presented;

(5)

notarial paper on the alienation process issued by the notary organ (brief statement on the bad claims, alienation mode, major domestic and overseas investors that take part in the alienation, the related quotations);

(6)

legal letter issued by law firm; and

(7)

other materials as requested by the National Development and Reform Commission.

8.

In case the National Development and Reform Commission holds that the archival filing materials are incomplete or fail to meet the related requirements, it shall, within 5 workdays after it receives the materials, inform the related domestic financial institution aliening bad claims to foreign parties once and for all and require it to define and make up the related explanations and documents or adjust the content concerned. In case a domestic financial institution still fails to provide complete archival filing materials within 20 workdays since it is notified or aliens bad claims by violating the provisions of the present Circular, the National Development and Reform Commission shall issue a notice of refusing to archive to the domestic financial institution aliening bad claims to foreign parties and state the reasons. The National Development and Reform Commission shall prepare an archival filing confirmation letter to the domestic financial institution that aliens bad claims to foreign parties within 20 workdays after receiving the complete archival filing materials.

9.

A domestic financial institution aliening bad claims to foreign parties shall submit the related documents on the exchange issues concerned in the alienation and the archival filing confirmation letter issued by the National Development and Reform Commission to the State Administration of Foreign Exchange within 15 workdays after receiving the archival filing confirmation letter issued by the National Development and Reform Commission. After the State Administration of Foreign Exchange examines and approves the exchange, the domestic financial institution aliening bad claims shall go through exchange settlement formalities at the appointed branch bureau of foreign exchange control, while the overseas investor accepting the bad claims or its agency shall go through the formalities for the archival filing registration of the alienation of bad claims.

10.

In case a bad claim is disposed in manners of overseas investment, it shall be conducted according to the Interim Measures for Examining and Approving Overseas Investment Projects (Decree No.21 of the National Development and Reform Commission) and the related provisions on the administration of foreign exchange.

11.

The National Development and Reform Commission and the State Administration of Foreign Exchange shall cancel the archival filing confirmation or archival filing registration of aliening bad claims to foreign parties, in case an overseas investor or a domestic financial institution aliening bad claims to foreign parties obtains archival filing confirmation letter or conduct archival filing registration of debts alienation by illegal means like providing false materials.

12.

In case any overseas investor viciously releases information to the outside, conducts any behavior that infringes China's foreign debt service credibility, engages in such illegal criminal activities as money laundering through transactions of bad claims or does any other activity that seriously violates the present Circular, once it is ascertained, the National Development and Reform Commission shall, in collaboration with the State Administration of Foreign Exchange, prohibit the overseas investor from purchasing any domestic bad credit. The overseas investor shall be aliened to and punished by the judicial organ in the case of the constitution of any crime.

13.

In case an investor from Hong Kong SAR or Macao SAR, or Taiwan Region takes part in the disposal of bad claims of the inland, it shall be governed by the present Circular by analogy.

14.

The National Development and Reform Commission and the State Administration of Foreign Exchange shall be responsible for interpreting the present Circular. In case any previous provision conflicts with the present Circular, the present Circular shall prevail.

15.

The provisions mentioned above shall go into effect as of April 1, 2007.

National Development and Reform Commission

State Administration of Foreign Exchange

February 1, 2007

  The National Development and Reform Commission, the State Administration of Foreign Exchange 2007-02-01  


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