Laws of the People's Republic of China

Circular of the People's Bank of China and China Securities Regulatory Commission concerning Transferring the Reloans for the Risk Disposal of Securities Companies to China Securities Investor Protection Funds Limited Liability Company

Yin Fa [2006] No. 301

Shanghai Headquarters of the People's Bank of China, branches and business management departments of Guangzhou and Wuhan, as well as the central sub-branches of the People's Bank of China in Zhengzhou, Fuzhou and Shenzhen; the Securities Regulatory Bureaus of Beijing, Shanghai, Guangdong, Hubei, Henan, Fujian and Shenzhen as well as the China Securities Investor Protection Funds Limited Liability Company; the clearing (trust) institutions of D'Hong Securities Company, Hengxin Securities Company, Hantang Securities Company, China Eagle Securities Company, Asia Securities Company, China Northern Securities Company, China Southern Securities Company, MF Securities Company, Wuzhou Securities Company, Min'an Securities Company, and Wuhan Securities Company:

During the recent years, for the purpose of cooperating with the disposal of securities companies with high risk, maintaining the stability of the securities market and the society, the People's Bank of China has, upon the approval of the State Council, extended reloans for the financial stability, which is used to make up the gap of the settlement funds of customer securities trading and to purchase individual credit rights. At present, the China Securities Investor Protection Funds Limited Liability Company (hereafter referred to as the Protection Funds Company) has been set up. In order to further smooth the relations of the extending of reloans to the securities companies for risk disposal, the Headquarter of the People's Bank of China has decided to uniformly modify the risk disposal reloans which was extended by Shanghai Head Office and other related branches and sub-branches of the People's Bank of China to the disposed trust and clearing institutions of securities companies before the foundation of the Protection Funds Company into that extended by the Business Management Department of the People's Bank of China (hereafter referred to as the Business Management Department) to the Protection Funds Company. Hereby related issues are noticed as follows:

1.

After transferring the reloans, the borrower of the reloans shall be modified from the trust and clearing institutions of disposed securities companies into the Protection Funds Company; and the lender shall be modified from Shanghai Head Office and other related branches and sub-branches of the People's Bank of China into the Business Management Department.

2.

The extended quotas shall be distributed by the Headquarters of the People's Bank of China to the Business Management Department (which shall be the actually extended amount within the quotas approved by the State Council); after signing an agreement concerning the extending of reloans with the Protection Funds Company, the Business Management Department shall extend the sum of reloans to the Protection Funds Company; the Protection Funds Company shall sign an "Agreement concerning the Transferring of Reloans To the Securities Company for Risk Disposal" jointly with the other four parties, namely , Shanghai Head Office or other branches concerned of the People's Bank of China, Business Management Department, the trust and clearing institution of the disposed securities company, and the regulatory department, and repay the reloans of Shanghai Head Office or other branches concerned of the People's Bank of China on behalf of the trust and clearing institution, while the borrower of all the reloans shall be changed from the trust and clearing institution into the Protection Funds Company; and the Headquarters of the People's Bank of China shall withdraw all the quotas from Shanghai Head Office and other branches concerned of the People's Bank of China for the extending of reloans to securities companies for risk disposal.

3.

All the obligations of repaying the interest of reloans owed by trust and clearing institutions to Shanghai Head Office and other branches concerned of the People's Bank of China shall be undertaken by the Protection Funds Company, whether it is spot interest payable or off-balance-sheet accrued interest receivable. On the date of transferring the reloans, Shanghai Head Office or any other branches concerned of the People's Bank of China shall provide a list of spot interest payable and off-balance-sheet accrued interest receivable of each sum of reloan by the date of transfer to Business Management Department, and shall write off the off-balance-sheet accrued interest receivable. After receiving the list of interest, the Business Management Department shall open an off-balance-sheet account to make accurate reckoning of the accrued interest receivable of each sum of reloan. Subject to the principles of "separating old reloans from new ones and calculating interest separately", the extended reloans shall be applied to the contractual interest rate and to those reloans not yet granted, the interest rate shall be more preferential with 165 basic points than the annual interest rate of the reloans extended by the People's Bank of China to financial institutions.

4.

The transferring work shall be carried out by batches according to the number of the disposed institutions. The transferring procedures for each disposed institution shall be accomplished within one day (the date of transferring reloans for each disposed institution shall be notified separately). The Protection Funds Company shall open a special account of reloan funds in the Business Management Department before the date of transfer.

On the date of transfer, the accounting of the reloans extended by the Business Management Department to the Protection Funds Company shall be treated as:

Debit: Loan of other financial institutions - account of the China Securities Investor Protection Funds

Credit: Other deposits- account of the China Securities Investor Protection Funds

At the same time, the Protection Funds Company shall transfer the related money to Shanghai Head Office or other branches concerned of the People's Bank of China, and repay the reloans on behalf of the trust and clearing institution. The accounting of the Business Management Department shall be treated as:

Debit: Other deposits - account of the China Securities Investor Protection Funds

Credit: Large-sum current payments

Receive: Accrued interest receivable - account of the China Securities Investor Protection Funds

The accounting of the money received by Shanghai Head Office or the branches concerned shall be treated as:

Debit: Large-sum current payments

Credit: Reserve deposits of other financial institutions - account of the trust and clearing institution ______ (named)

Debit: Reserve deposits of other financial institutions - account of the trust and clearing institution ______ (named)

Credit: Loan of other financial institutions - account of the trust and clearing institution ______ (named)

Pay: Accrued interest receivable - account of the trust and clearing institution ______ (named)

The accounting treatment of the Protection Funds Company shall be reflected as the increase of debts to the Business Management Department, and increase of credits over the trust and clearing institution simultaneously.

5.

After transferring a certain sum of reloan, the original copies of related materials shall be kept appropriately in archives by Shanghai Head Office or the branches concerned of the People's Bank of China. Shanghai Head Office or the branches concerned of the People's Bank of China shall turn over the photocopies of the related materials to the Protection Funds Company, and a list of the materials shall be attached. When transferring, both parties shall sign and confirm the list of transfer. The list of transfer shall be in duplicate, and either party shall keep one. When the Protection Funds Company needs to use the original copies of related materials for declaring credit rights to the bankruptcy court, Shanghai Head Office or the branches concerned of the People's Bank of China shall cooperate with them.

6.

Where the China Security Regulatory Commission has already submitted an application of reloan before May 31, 2006 to the People's Bank of China, the procedures for the transferring reloans to a certain disposed securities company may not be handled until the People's Bank of China has examined and extended the said applications.

7.

All units must do a good job in preparing all related items prior to the date of transfer. The related units shall strengthen coordination, make close cooperation, and do a good job in smoothing over all stages of the transfer.

The Business Management Department shall be responsible for determining the date of transferring the reloans to each institution, then report to the Headquarters in time, and do a good job in organization and coordination. If there is any question, please contact the Headquarters in time.

Appendixes:

1.

Statistical Statement of the Transferable Reloans To Securities Companies for Risk Disposal

2.

Agreement concerning Transferring the Reloans To the Securities Company for Risk Disposal (Template)

The People's Bank of China

China Securities Regulatory Commission

August 28, 2006

Appendix 1:

Statistical Statement of the Transferable Reloans To Securities Companies for Risk Disposal

Unit: CNY 100 million

　　Notes:
　　1. The aforesaid amounts (two digits following the radix point shall be reserved after the figure is rounded) are only for reference, and the actually granted amounts shall prevail when transferring.
　　2. The extending of reloans of the five companies under "postponed transfer" may not be transferred until the matters listed in "VI" of the "Notice" have been finished.
　　3. The transfer of reloans to China Southern Securities shall be determined by the People's Bank of China with consulting the CSRC.

Appendix 2:

Agreement concerning Transferring the Reloans To Securities Company for Risk Disposal (Template)

　　Party A: Shanghai Head Office or the branch of the People's Bank of China (lender under the former contract)
　　Party B: Trust and Clearing Institution of ______ Securities Company (borrower under the former contract)
　　Party C: China Securities Investor Protection Fund Limited Liability Company
　　Party D: Business Management Department of the People's Bank of China
　　Party E: ______ (Commissioners' Office or Bureau) of China Securities Regulatory Commission
　　 In accordance with the "Notice of the People's Bank of China on Transferring Reloans To Securities Companies for Risk Disposal to China Securities Investor Protection Fund Limited Liability Company" (No. 301 [2006], shortened as the "Notice" hereafter), and for the purpose of further clarifying the borrowers of the reloans to the securities companies for risk disposal (shortened as "reloans" hereafter), straightening out the credit-debt relationships of the ranting of reloans, and guaranteeing the smooth transfer of the reloans used for the disposal of ______ Securities Limited Liability Company (shortened as "______ Securities" hereafter), after joint negotiations between five parties (shortened as "this Agreement" hereafter), this Agreement on the Transfer of Reloans is hereby concluded.
　　Transfer of reloans shall mean that, before the establishment of the China Securities Investor Protection Fund Limited Liability Company (hereafter shortened as the Protection Fund Company), Shanghai Head Office or the branch of the People's Bank of China shall uniformly modify the reloans granted to the trust and clearing institutions of disposed securities companies for risk disposal into that granted by Business Management Department of the People's Bank of China to the Protection Fund Company, while Shanghai Head Office or the branch concerned of the People's Bank of China shall demise the rights and obligations over the credits of the aforesaid reloans to the Protection Fund Company in accordance with law.
　　The duties of all parties in the process of transfer of the reloans and after the transfer are defined by this Agreement as follows:
　　1. The borrower under either the framework agreement on the extending of reloans or each reloan contract as concluded between Party A, Party B and Party E before the conclusion of this Agreement shall be modified from Party B into Party C, and at the same time the lender shall be modified from Party A into Party D.
　　2. The sum of reloans borrowed by Party B under all previous loan contracts is CNY ______. By ____ (date), 2006 (date of handover), CNY ______ has been allotted and used actually (among this sum, CNY ______ of acquisition funds to be raised by the Central Government at the prescribed proportion and to be used to acquire the individual credits of ______Securities is paid on its behalf in advance, and CNY ______ is used to replenish the shortage of customer securities trading settlement funds); the immediate interest payable is CNY ______, and the off-balance-sheet accrued interest receivable is CNY ______.
　　3. After transfer of the reloans, Party D and Party C shall set up a new credit-debt relationship on the granting of reloans, Party A shall demise all its previous credit-based rights over Party B regarding the granting of reloans to Party C in accordance with law, and a credit-debt relationship shall be set up between Party C and Party B .
　　4. The reloans interest owed by Party B to Party A shall all be transferred along with the principal of the reloans, and shall be recovered by Party D, no matter whether it is immediate interest payable or off-balance-sheet accrued interest receivable.
　　5. After the reloans are transferred, the original copies of related materials shall be kept in custody by Party A appropriately in archives, and the photocopies shall, after both parties have signed and confirmed the handover list, be handed over by Party A in earnest time to Party C. When Party C needs to use the original copies of related materials for reporting credits to the bankruptcy court, Party A shall provide them.
　　6. With regard to the problems arising out of the granting of reloans before the conclusion of this Agreement, Party C may not undertake any liability.
　　7. The matter under other clauses of the framework agreement on the extending of reloans or each loan contract that is concluded between Party A, Party B and Party E before the conclusion of this Agreement and the related rights and obligations shall be agreed upon between the modified Party D, Party C and Party E in the new agreement after the transfer of reloans, if previously enjoyed or assumed by Party A, Party B or Party E.
　　8. For the purpose of guaranteeing the work of reloans transfer to be conducted and completed smoothly, Party A and Party B shall cooperate with Party D and Party C in doing well the necessary work for the reloans transfer.
　　9. Party A shall make related accounting treatment in light of a photocopy of the "Notice" and a photocopy of this Agreement that has come into effect upon affixation with each party's seal. Upon the strength of a photocopy of the "Notice", a photocopy of this Agreement effective upon affixation with each party's seal, as well as a list of all sums of lending and a list of detailed interest as provided by Party A, Party C and Party D shall make related accounting treatment.
　　10. In supervising the safe and lawful use of reloans by the trust and clearing institution, Party E shall cooperate with Party C and the on-site working team of the securities company.
　　11. This Agreement may not become effective until being signed by the five parties. Other matters that are not yet stipulated herein shall be settled by the five parties through negotiation in accordance with the presently applicable laws and regulations of the state as well as related provisions of the State Council and those of the related ministries and commissions.
　　12. This Agreement shall be in septuplicate. Party A, Party B, Party C, Party D, Party E, the Financial Stability Office of the People's Bank of China and the Securities Company Risk Disposal Office of CSRC shall keep one copy respectively.
　　Party A: Shanghai Head Office or the branch concerned of the People's Bank of China (Seal)
　　Signatory: _____ (Month) ______ (Date) ____(Year)
　　Party B:______ Securities Clearing Team (Trust Team) (Seal)
　　Signatory: _____ (Month) ______ (Date) ____(Year)
　　Party C: China Securities Investor Protection Fund Limited Liability Company (Seal)
　　Signatory: _____ (Month) ______ (Date) ____(Year)
　　Party D: Business Management Department of the People's Bank of China (Seal)
　　Signatory: _____ (Month) ______ (Date) ____(Year)
　　Party E: China Securities Regulatory Commission______(Commissioners' Office or Bureau) (Seal)
　　Signatory: _____ (Month) ______ (Date) ____(Year)