China Trade Information

Certain backward industries in Guangdong are slated for relocation to other regions within the province. In a move to implement the decision of the recent provincial meeting on industry relocation and the set of opinions on joint efforts by the mountainous regions, eastern and western regions and Pearl River Delta (PRD) region of Guangdong province on industry relocation, as well as promote the utilisation of industry relocation parks, the following laws, regulations and suggestions have been formulated. Hong Kong companies should take note of the details of these new rules.

Principles and eligibility criteria for utilising industry relocation parks

Industry relocation parks should be utilised for the following purposes: scientific development; steadfastly implementing the state policy of “cherishing and utilising land resources rationally, and resolutely conserving cultivated land”; utilising land resources in a cost-effective and intensive way; exploring development potential fully; expanding the scope of land utilization; speeding up the establishment of a number of industry relocation parks.

Industry relocation parks should set an example for development zones that are confirmed by the State Council to stay on. Greater efforts should be made to enhance the industrial structure of the parks, speed up the entry of industries into the parks, thereby increasing the degree of clustering of industries in the parks and the overall land utilisation rate.

Measures in support of land utilisation in industry relocation parks

1. Speed up the formulation of national land resources plan and revision of the overall land utilisation plan, and align the overall land utilisation plan with that of urban-rural development plan. Step up efforts in conserving cultivated land, and strengthening conservation measures for agricultural land.

2. Make rational adjustment to the cumulative balance of agricultural-turned-construction land. For those cities and counties which still have unused quota of agricultural land that can be converted into construction land, such plots can be transferred with compensation. The transfer price should not be lower than the indicative price for the transfer of reserve cultivated land of the place where the plot is located. The indicative price for the transfer of reserve cultivated land is determined by the cultivated land development cost as stipulated in the Measures of Guangdong Province on the Administration of Supplementary Cultivated Land for Non-Agricultural Construction. The parties concerned are not allowed to negotiate a price on their own.

3. Proactively utilise existing inventory of construction land. Various options can be explored, such as swapping of plots, adjustment in land-use right and change in land-use. For instance, a plot already approved for construction where construction has not actually started and can thus be recovered and converted into agricultural land may be swapped with an agricultural plot or unused plot of similar size situated in a different locality. The latter will then be converted into construction purposes. In so doing, the annual agricultural land conversion quota will not be affected, and the land-use right owner and type of land-use may be adjusted in accordance with law. However, plot swapping has to satisfy several criteria, namely keeping in line with the overall land utilisation plan and urban-rural development plan, no increase in the total area of construction land, no decrease in agricultural land especially cultivated land, and no compromise on quality.

4. Make the best use of land-use policies in support of the development of central towns and mountainous regions. The provincial government and departments concerned should maximise the benefits of industry relocation parks to promote the economic development of central towns and mountainous regions. Preferential measures in various aspects should be formulated, such as overall land-use quota, balance between cultivated land utilisation and replenishment, the fee for acquiring the right to use new construction land, cultivated land development cost, and land development. For large-scale, highly effective industry relocation parks, the provincial government departments may consider offering appropriate preferential treatment to the cooperation parties concerned in support of their project provided that necessary adjustment are made within the province’s overall land-use quota.

5. Encourage the transfer of collectively owned construction land for compensation. To implement the Measures of Guangdong Province on the Administration of the Circulation of the Right to Use Collectively Owned Construction Land, the sale, transfer, leasing and mortgage of collectively owned construction land are encouraged and supported. Sale of land-use right may take the form of capitalisation, equity share, cooperation, and joint business operation. The rationale for this is to ensure collectively owned construction land in rural areas is entitled to the same rights as state-owned land.

6. Step up efforts to rectify and recover land resources in order to ensure a balance between cultivated land utilisation and replenishment. Local authorities are encouraged to actively rectify and recover idle plots such as old factory premises and deserted mines. Construction land which has been rectified and recovered as agricultural land or cultivated land may be swapped with plots that are originally intended for construction upon verification by provincial land and resources department and provincial agriculture department. The swapping of plots in this way is not counted towards the annual agricultural land conversion quota, and cash compensation is permitted. The system of swapping plots in different locations in order to replenish cultivated land will continue. Whole-plot development may be scaled down to 500 mu in each case to maintain a balance between cultivated land utilisation and replenishment.

7. Leverage on land reserve to make adjustment and utilise land and resources effectively. To implement the Circular on Expediting the Establishment and Improvement of Land Reserve System, the provincial government is responsible for adjusting the land reserve of industry relocation parks and carrying out early-stage development of the land. The support of financial organisations will be sought for the operation of the land reserve system.

8. Policy support is granted to industry relocation parks on land related taxes and fees:

i) Upon approval by the State Council or provincial government, industry relocation parks may acquire agricultural land or unused land in mountainous regions in accordance with the preferential policy governing the land-use fees of construction land that is newly developed in mountainous regions. The 20% of the proceeds from the land use fees generated by newly developed construction land in industry relocation parks which should go to the provincial coffers will be retained at the local treasury where the park is located and be utilised to develop cultivated land and prepare more plots in accordance with rules and regulations. Meanwhile, whether the 10% of the proceeds which is the entitlement of local authorities at city level and above is retained at the county (or district) where the industry relocation park is located is at the discretion of the local authorities concerned.

ii)In proactively utilising existing inventory of construction land, if the swapping of plots does not result in an increase in construction land, it can be treated as no increase in newly developed construction land and no newly developed construction land fee will be levied. If no reduction in cultivated land and no compromise on quality are resulted, it can be treated as no utilisation of cultivated land and no cultivated land development fee will be payable.

Issues to be Resolved at Industry Relocation Parks

Five issues need to be handled properly in the utilisation of land in industry relocation parks:

1. Steadfastly protect the lawful interests of farmers. In acquiring collectively owned agricultural land, compensation equivalent to the maximum amount stipulated by law should be made in full promptly. No part of the payment should be held up or diverted to other uses. Besides, measures such as land retention, relocation, employment arrangement, equity share in lieu of compensation, and land use right as capital contribution should be taken to ensure that the farmers affected will have steady income and protection over the long term.

2. Resolutely prevent a new round of “land requisition fever”. The principles of utilising land lawfully, scientifically and rationally must be adhered to. Acquiring land and leaving it idle; requisition, transfer and leasing of land by illegal means; indiscriminate requisition of land; and leaving land idle resulting in wastage are prohibited. The land in industry relocation parks is not allowed to be outsourced to developers in a wholesale manner. Land and resources departments at county level and above must step up supervision at all stages of land utilisation.

3. Strictly control the area of land reserved for administrative offices and community facilities within industry relocation parks to no more than 10% of that occupied by industrial projects.

4. Promote the industry relocation parks in an appropriate way. The effective implementation of industry relocation parks will become Guangdong’s major initiative in consolidating order in the land market and other achievements in land market rectification, as well as in propelling the further development of the province. Media organisations at local levels should disseminate the message that land in the industry relocation parks is managed and utilised in an efficient and intensive manner in accordance with law, and the inventory of land is being utilised proactively in order to set a new standard and best practice for raising the effectiveness of land usage.

5. Increase the efficiency of land-use approval in industry relocation parks. Land and resources departments at all levels should streamline approval procedures, increase efficiency and raise service quality. All government departments concerned should work closely together, each performing their respective duties, to ensure the success of industry relocation parks. Authorities at local levels should see to it that the quality of building materials proposed to be used in industry relocation parks are high, that the required taxes are paid in full in accordance with law, and that land-use approval documents are issued promptly.

The Regulations of Guangdong Province on Food Safety (Draft) was recently submitted to the Guangdong Provincial People’s Congress Standing Committee for deliberation. The draft legislation contains rules that are to be introduced for the first time in China on issues such as food recall and testing and assessment of food safety. In future, food failing to meet the required standard or found to pose safety hazard or potential safety hazard will be recalled from the market promptly in order to protect the lawful interests of consumers.

Recent incidents such as the Sudan IV duck egg scare with great implications for people’s health are still very much a hot issue. As director of Guangdong’s food and drug administration Chen Yuansheng pointed out, people are very concerned about food safety. Although there is no national law or regulation on food safety in China yet, Guangdong has taken the lead to introduce legislation in this area. The objective is to clearly define the responsibilities with regard to food safety and regulate the conduct of supervision and management of food safety.

Chen said the new legislation is characterised by unprecedented stipulations on the system and mechanism concerned. First, the responsibilities of various government departments such as agriculture, marine and fisheries, quality and technical supervision, industry and commerce, and public health, are clearly defined so that there will be no passing of the buck. Second, a food recall system will be introduced for the first time in China. The recall can be initiated by the enterprise concerned voluntarily or ordered by administrative departments.

The draft also addresses for the first time mechanisms for preventing and handling food safety crises. People’s governments at country level or above are required to formulate contingency plans to handle food safety crises, as well as to set up an alert and announcement system on food safety information. Food safety supervision departments not only have to collect, analyse, compile and publicise their findings but also communicate such information with other relevant government departments.

The draft also prohibits food safety supervision departments, food testing and inspecting organisations, and other government organs from participating in food production in the capacity of production supervisor.

To further strengthen the management of music distributed through different kinds of networks, the Ministry of Culture (MOC) recently issued a set of opinions on the development and management of network music. An official in charge of MOC’s cultural market department said the opinions spell out for the first time China’s policy in this sector.

The opinions clarify for the first time that network music covers all kinds of music products distributed by wired or wireless means such as the internet and mobile telecommunications networks. Network music is characterised by music which is produced, distributed and consumed in digitalised format.

The official further explained that “network” refers not only to the internet but also to various other IP-based, intelligent networks with interactivity capabilities such as telecommunications networks, mobile internet, cable TV networks, satellite communications, microwave communications and optic-fibre communications.

In accordance with the requirements set out in the cultural development plan regarding “active promotion of cultural industries through networks” during the 11th Five-Year Programme period, the opinions call for the establishment of different promotion mechanisms to encourage more original works that are intellectually stimulating, of high artistic value, and blending music and network technology perfectly together. In so doing, steady improvement in the quality and standards of original network music products in China can be achieved.

To mobilise all walks of society in this respect, MOC has lifted various barriers to the network culture market for domestic service providers such as restrictions in terms of enterprise ownership, industry category, geographic location and supervisory government department. Domestic enterprises are strongly encouraged to develop network cultural products that are technologically advanced, with proprietary intellectual property rights, and with healthy, constructive content.

The opinions reiterate that all business operations in relation to network music must be conducted by cultural organisations approved by MOC to engage in internet-related business operations. The scope covers the import of network music. The establishment of foreign-invested cultural organisations that deal in network-related business operations is prohibited under the opinions. The MOC official pointed out that only holders of “Network Cultural Business Licence” issued by MOC whose scope of business covers network music products are qualified to operate such business.

The opinions require all imports of network music products that are intended for distribution within the Chinese territory to be approved by or filed with MOC. Imported network music products must undergo content screening by MOC before they can be released to the market. Music products which are to be distributed by networks must be handled by cultural organisations authorised to deal in internet-related business operations according to law. Only cultural organisations that are approved by MOC to deal in internet-related business operations may engage in the import of network music products.

The opinions also provide that network music products from Hong Kong, Macau and Taiwan will be treated in the same way as similar products from foreign countries.

Article 1 This law is enacted for the purposes of improving banking regulation and supervision, standardising banking supervisory process and procedures, preventing and mitigating financial risks in the banking industry, protecting the interests of depositors and other customers, as well as promoting a safe and sound banking industry in China.

Article 2 The banking regulatory authority under the State Council shall be responsible for the regulation and supervision of the banking institutions in China and their business operations.

For the purposes of this law, the term “banking institutions” means financial institutions established in the People’s Republic of China that take deposits from the general pubic, including, among others, commercial banks, urban credit cooperatives and rural credit cooperatives, and policy banks.

The provisions of this law pertaining to the regulation and supervision of banking institutions are applicable to the regulation and supervision of asset management companies, trust and investment companies, finance companies, financial leasing companies and other financial institutions established in the People’s Republic of China as authorised by the banking regulatory authority under the State Council.

The banking regulatory authority under the State Council shall, in accordance with the applicable provisions of this law, regulate and supervise the financial institutions that, subject to its approval, are established outside the People’s Republic of China, as well as the overseas business operations conducted by the financial institutions referred to in the preceding two paragraphs.

Article 3 The objectives of banking regulation and supervision are to promote the safety and soundness of the banking industry and maintain public confidence in the banking industry.

Towards these objectives, the banking regulation and supervision shall protect fair competition in the banking industry and promote the competitiveness of the banking industry.

Article 4 The banking regulatory authority shall exercise banking regulation and supervision in accordance with laws and regulations and in line with the principles of openness, fairness and efficiency.

Article 5 The banking regulatory authority and its supervisory staff shall be protected by law while performing supervisory responsibilities in accordance with laws and regulations. There shall be no interference by local governments, government departments at various levels, public organisations or individuals.

Article 6 The banking regulatory authority under the State Council shall establish supervisory information sharing mechanisms with the People’s Bank of China and other regulatory authorities under the State Council.

Article 7 The banking regulatory authority under the State Council may establish supervisory cooperation mechanisms with the banking supervisory authorities in other countries and regions for the supervision of cross-border banking.

Article 8 The banking regulatory authority under the State Council may, if deemed necessary for performing its responsibilities, set up local offices, and shall exercise centralised oversight of its local offices.

The local offices of the banking regulatory authority under the State Council shall perform supervisory functions as authorised by the banking regulatory authority under the State Council.

Article 9 The supervisory staff of the banking regulatory authority shall have the professional skills and work experience as required for performing their duties.

Article 10 The staff of the banking regulatory authority shall perform their duties with integrity and in accordance with laws and regulations. They shall not take advantage of their positions to seek inappropriate gains, or concurrently hold a position in enterprises including financial institutions.

Article 11 The staff of the banking regulatory authority shall preserve the confidentiality of information for the State according to applicable laws and regulations, and for the banking institutions subject to their supervision and other parties concerned.

The banking regulatory authority under the State Council shall make relevant arrangements for preserving the confidentiality of information while exchanging supervisory information with the banking supervisory authorities in other countries and regions.

Article 12 The banking regulatory authority under the State Council shall make public its supervisory process and procedures, and put in place a supervisory accountability system and an internal compliance monitoring mechanism.

Article 13 Local governments and relevant government departments at various levels shall cooperate and provide assistance for the banking regulatory authority to exercise its supervisory activities, such as resolving problem banking institutions, and investigating and taking enforcement actions against activities that violate laws and regulations.

Article 14 The banking regulatory authority under the State Council shall be subject to the overview by relevant government agencies such as the audit institution and supervisory institution under the State Council.

Article 15 The banking regulatory authority under the State Council shall, in accordance with applicable laws and administrative regulations, formulate and promulgate supervisory rules and regulations for banking institutions.

Article 16 The banking regulatory authority under the State Council shall, in accordance with the criteria and procedures provided in applicable laws and administrative regulations, authorise the establishment, changes, termination and business scope of banking institutions.

Article 17 The banking regulatory authority under the State Council shall review and assess the source of capital, financial strength, ability to replenish capital and integrity of the shareholders while reviewing the applications for the establishment of a banking institution or changes in the shareholders that hold a certain percentage or more of the total capital or total share as stipulated in applicable laws and regulations.

Article 18 Products and services offered by a banking institution within its business scope authorised by the banking regulatory authority under the State Council shall, in accordance with applicable regulations, be subject to prior approval of the banking regulatory authority under the State Council or the report for filing requirement. The banking regulatory authority under the State Council shall, in accordance with applicable laws and administrative regulations, make public the products and services that are subject to prior approval or report for filing requirement.

Article 19 Without the authorisation of the banking regulatory authority under the State Council, no institution or individuals may establish a banking institution or engage in banking businesses.

Article 20 The banking regulatory authority under the State Council shall conduct fit and proper test for directors and senior managers of banking institutions. For this purpose, the banking regulatory authority under the State Council shall formulate specific rules and procedures on the fit and proper test.

Article 21 Prudent rules and regulations applied to banking institutions may be stipulated in laws or administrative regulations, or formulated by the banking regulatory authority under the State Council in accordance with applicable laws and administrative regulations.

“Prudent rules and regulations” referred to in the preceding paragraph shall cover, among others, risk management, internal controls, capital adequacy, asset quality, loan loss provisioning, risk concentrations, connected transactions and liquidity management.

The banking institutions shall observe the said prudent rules and regulations.

Article 22 The banking regulatory authority under the State Council shall, within a prescribed period of time, make a decision of approval or rejection in writing in response to the following applications. If a decision of rejection is made, it shall specify the reasons for rejection:

(1) In the case of establishment of a banking institution, within six months from the date of receiving the application documents;

(2) In the case of changes or termination of a banking institution or offering new products or services within the business scope authorised by the banking regulatory authority under the State Council, within three months from the date of receiving the application documents; and

(3) In the case of fit and proper test for directors and senior managers, within 30 days from the date of receiving the application documents.

Article 23 The banking regulatory authority shall conduct off-site surveillance of the business operations and risk profile of banking institutions. For this purpose, it shall establish a supervisory information system to analyse and assess the risk profile of banking institutions.

Article 24 The banking regulatory authority shall conduct on-site examination of the business operations and risk profile of banking institutions.

The banking regulatory authority shall formulate on-site examination procedures to standardise on-site examination activities.

Article 25 The banking regulatory authority under the State Council shall regulate and supervise banking institutions on a consolidated basis.

Article 26 The banking regulatory authority under the State Council shall respond to the proposals of the people’s Bank of China for the examination of banking institutions within thirty days from the date of receiving the proposals.

Article 27 The banking regulatory authority under the State Council shall establish a rating system and an early warning system for the purpose of supervision of banking institutions, thus, based on the rating and risk profile of banking institutions, determining the frequency and scope of on-site examination as well as other supervisory measures that may be deemed necessary.

Article 28 The banking regulatory authority under the State Council shall establish a system to identify and report emergency situations in the banking sector.

The banking regulatory authority shall, as soon as identifying any emergency situations that may result in systemic banking risks, hence causing severe social instability, report to the chief responsible person of the banking regulatory authority under the State Council. The chief responsible person of the banking regulatory authority under the State Council shall, when deemed necessary, report to the State Council while informing relevant government agencies including the People’s Bank of China and Ministry of Finance.

Article 29 The banking regulatory authority under the State Council shall, in collaboration with relevant government agencies including the People’s Bank of China and Ministry of Finance, establish mechanisms to address emergency situations in the banking sector, including formulating contingency plans, designating institutions and staff members, specifying their responsibilities, and stipulating resolution measures and procedures, hence ensuring timely and effective resolution of the emergency situations in the banking sector .

Article 30 The banking regulatory authority under the State Council shall compile and publish statistics and reports of banking institutions in accordance with applicable regulations of the State.

Article 31 The banking regulatory authority under the State Council shall guide and oversee the activities of the self-regulated organisations of the banking industry.

The self-regulated organisations of the banking industry shall submit their articles of association to the banking regulatory authority under the State Council for filing.

Article 32 The banking regulatory authority under the State Council may engage in the international activities related to banking regulation and supervision.

Article 33 The banking regulatory authority shall, for the purpose of performing its responsibilities, have the authority to require banking institutions to submit, in accordance with applicable regulations, balance sheets, income statements, other financial and statistical reports, information concerning business operations and management, and the audit reports prepared by certified public accountants.

Article 34 The banking regulatory authority may take the following measures to conduct on-site examination for the purpose of exercising prudent supervision:

(1) enter a banking institution for on-site examination;

(2) interview the staff of the banking institution and require them to provide explanations on examined matters;

(3) to have full access to and make copies of the banking institution’s documents and materials related to the on-site examination, and to seal up documents and materials that are likely to be removed, concealed or destroyed; and

(4) examine the banking institution’s information technology infrastructure for business operations and management.

The on-site examination shall be subject to prior approval of the chief responsible office of the banking regulatory authority. The on-site examination team shall comprise no less than two examiners, who shall produce their examiner’ certificates and the examination notice upon examination. If the on-site examination team comprises less than two examiners, or the examiners fail to produce their examiner’ certificates or the examination notice upon examination, the banking institutions shall have the right to refuse the examination.

Article 35 The banking regulatory authority may, for the purpose of performing its responsibilities, hold supervisory consultations with the directors and senior managers of a banking institution to inquire about the major activities concerning its business operations and risk management.

Article 36 The banking regulatory authority shall require banking institutions to disclose, in accordance with applicable regulations, to the public reliable information, including, among others, financial reports and statements, risk management policies and procedures, changes in the directors and senior managers and information on other significant matters.

Article 37 When a banking institution fails to meet prudent rules and regulations, the banking regulatory authority under the State Council or its provincial office shall require it to take remedial measures within a prescribed period of time. If the banking institution fails to correct the deficiencies within the prescribed period of time, or the safety and soundness of the banking institution is likely to be severely threatened and the interests of its depositors and other customers are likely to be jeopardized, the banking regulatory authority under the State Council or its provincial office may, subject to the approval of its chief responsible officer, take the following measures depending on the severity of the circumstances:

(1) suspend part of the businesses of the banking institution and/or withhold approval of new products or services;

(2) restrict dividend or other payments to shareholders;

(3) restrict asset transfers;

(4) order the controlling shareholders to transfer shares or restrict the powers of relevant shareholders;

(5) order the banking institution to replace the directors and/or senior managers or restrict their powers; and

(6) withhold approval of branches.

The banking institution shall report to the banking regulatory authority under the State Council or its provincial office once it is restored to meet the prudent rules and regulations after taking corrective measures. The banking regulatory authority under the State Council or its provincial office shall terminate the measures prescribed in the preceding paragraph within three days after the verification of compliance.

Article 38 When a banking institution is experiencing or likely to experience a credit crisis, thereby seriously jeopardizing the interests of depositors and other customers, the banking regulatory authority under the State Council may take over the banking institution or facilitate a restructuring. The take-over or restructuring shall be carried out in accordance with applicable laws and administrative regulations.

Article 39 When a banking institution is found to be in serious violation of laws and regulations, or significant unsafe or unsound practices, thereby seriously threatening financial order and public interests unless it is closed, the banking regulatory authority under the State Council shall have the authority to close the institution in accordance with applicable laws and regulations.

Article 40 In the case of the take-over, restructuring, or closure of a banking institution, the banking regulatory authority under the State Council shall have the authority to require the directors, senior managers and other staff of the banking institution to perform their duties according to the requirements of the banking regulatory authority under the State Council.

In the course of the take-over, restructuring or liquidation after the closure of a banking institution, the banking regulatory authority under the State Council shall have the authority, subject to the approval of its chief responsible person, to take the following measures against the directors and senior managers directly in charge and other staff directly held responsible:

(1) when the departure from the People’s Republic of China of the directors and senior managers directly in charge and other staff directly held responsible is likely to jeopardize the national interests, the banking regulatory authority under the State Council may request the border control authority to prevent them from leaving the People’s Republic of China; and

(2) to request the judicial authority to prohibit the directors and senior managers directly in charge and other staff directly held responsible from moving or transferring their properties, or establishing other rights on their properties.

Article 41 The banking regulatory authority or its provincial office shall have the authority, subject to the approval of its chief responsible person, to inspect the bank accounts of the banking institution suspected of violation of laws and regulations, and the bank accounts of its staff and connected parties, and may, subject to the approval of its chief responsible person, request the judicial authority to freeze the illegally obtained funds that are suspected to be transferred or concealed.

Article 42 When the banking regulatory authority conducts inspections over banking and financial institutions according to law, upon the approval of the person responsible of the banking regulatory authority at the level of city that has districts under its administration, the banking regulatory authority may adopt the following measures against units or individuals who are suspected to be involved in illegal affairs:

(1) consulting related units or individuals and requesting them to give explanations on related matters,

(2) consulting and making copies of related financial, accounting, registration of property right, and other related documents and materials,

(3) registering and keeping in a preemptive manner documents and materials that are likely to be transferred, concealed, damaged or forged.

When the banking regulatory authority adopts the above mentioned measures, there should be no fewer than two investigators and they should produce their legitimate identity document and letter of notice of inspection. In cases where the number of investigators is fewer than 2 or they fail to produce their legitimate identity document and letter of notice of inspection, the related units or individuals shall have the right to reject the investigation. The related units and individuals shall offer cooperation to measures adopted according to laws, provide related documents and materials according to facts as requested, and not refuse, hinder, or conceal information.

Article 43 When the supervisory staff of the banking regulatory authority commits any of the following acts, he or she shall be subject to administrative sanctions according to law. If the case constitutes a crime, he or she shall be investigated for criminal liability according to law:

(1) authorise, in violation of regulations, a banking institution’s establishment, changes, termination, business scope or offering of products or services within its business scope;

(2) conduct on-site examination of banking institutions in violation of regulations;

(3) fail to report emergency situations in the banking sector in accordance with Article 28 of this law;

(4) inspect bank accounts or request freezing of funds in violation of regulations;

(5) take enforcement actions against a banking institution in violation of regulations;

(6) investigate into related units or individuals in violation of the provisions of article 42 of this law; and

(7) other acts such as abuse of power and/or neglect of duties.

The supervisory staff of the banking regulatory authority who commits embezzlement, bribery or divulgence of national, commercial confidential information, or personal privacy shall, if the case constitutes a crime, be investigated for criminal liability according to law, and if the case does not constitute a crime, be subject to administrative sanctions according to law.

Article 44 When a banking institution is established or banking businesses are conducted without the authorisation of the banking regulatory authority under the State Council, the banking regulatory authority under the State Council shall have the authority to ban such institution or businesses. If the case constitutes a crime, criminal liability shall be pursued according to law. If the case does not constitute a crime, the banking regulatory authority under the State Council shall confiscate the illegal gains. If the amount of illegal gains exceeds RMB500,000, a fine ranging from one to five times the amount of illegal gains shall be imposed. If no illegal gains are involved or the amount of illegal gains is less than RMB500,000, a fine ranging from RMB500,000 to RMB2,000,000 shall be imposed.

Article 45 When a banking institution commits any of the following acts, the banking regulatory authority under the State Council shall order it to take corrective measures, and, if illegal gains are involved, shall confiscate the illegal gains. If the amount of illegal gains exceeds RMB500,000, a fine ranging from one to five times the amount of illegal gains shall be imposed. If no illegal gains are involved, or the amount of illegal gains is less than RMB500,000, a fine ranging from RMB500,000 to RMB2,000,000 shall be imposed. If the case is particularly serious, or the banking institution fails to make correction within the prescribed period of time, the banking regulatory authority under the State Council may order suspension of business for rectification or revocation of its banking license. If the case constitutes a crime, criminal liability shall be pursued according to law:

(1) establish a branch without authorisation;

(2) change or terminate business operations without authorisation;

(3) offer a product or service without approval or filing with the banking regulatory authority under the State Council; and

(4) raise or lower interest rates on deposits or loans in violation of regulations.

Article 46 When a banking institution commits any of the following acts, the banking regulatory authority under the State Council shall order it to take corrective measures, and concurrently impose a fine ranging from RMB200,000 to RMB500,000. If the case is particularly serious, or the banking institution fails to make correction within the prescribed period of time, the banking regulatory authority under the State Council may order suspension of business for rectification or revocation of its banking license. If the case constitutes a crime, criminal liability shall be pursued according to law:

(1) appoint directors or senior managers without the fit and proper test;

(2) refuse or obstruct the off-site surveillance or on-site examination;

(3) submit statements, reports, documents or materials that are false or conceal important facts;

(4) fail to disclose information to the public in accordance with regulations;

(5) fail to meet prudent rules and regulations with serious consequences; and

(6) refuse to take measures as required by Article 37 of this law.

Article 47 When a banking institution fails to submit statements, reports, documents or materials in accordance with regulations, the banking regulatory authority under the State Council shall order it to take corrective measures. If the banking institution fails to make correction within the prescribed period of time, the banking regulatory authority may impose a fine ranging from RMB100,000 to RMB300,000.

Article 48 When a banking institution violates laws, administrative regulations or other national regulations on banking regulation and supervision, the banking regulatory authority may, in addition to the enforcement actions prescribed in Article 43 to Article 46 of this law, take the following measures depending on the severity of the circumstance:

(1) to order the banking institution to impose disciplinary sanctions on the directors and senior managers directly in charge and other staff directly held responsible;

(2) if the case does not constitute a crime, to issue a disciplinary warning to the directors and senior managers directly in charge and other staff directly held responsible and concurrently impose on them a fine ranging from RMB50,000 to RMB500,000; and

(3) to disqualify the directors and senior mangers directly in charge as being unfit and improper for a specified period of time or for life, and/or to bar the directors and senior mangers directly in charge and other staff directly held responsible from banking for a specified period of time or for life.

Article 49 Acts of hindering the exercise of inspection or investigation by working staff of the banking regulatory authority according to law shall be subject to punishment of public order offenses imposed by the public security authority. In cases where crimes are constituted, the related liabilities of the violators shall be investigated.

Article 50 Where the laws and administrative regulations provide otherwise the regulation and supervision of policy banks and asset management companies, these provisions shall prevail.

Article 51 Where the laws and administrative regulations provide otherwise the regulation and supervision of the wholly foreign-funded banking institutions, Sino-foreign joint venture banking institutions and branches of foreign banking institutions that are established in the People’s Republic of China, these provisions shall prevail.

Article 52 This law shall enter into effect as of January 1, 2004.

Decree No. 1 of 2006 of the People’s Bank of China

The People’s Bank of China has drafted the Rules for Anti-money Laundering by Financial Institutions in line with the provisions of the Anti-money Laundering Law of the People’s Republic of China, the Law of the People’s Bank of China of the People’s Republic of China and other laws, and was reviewed and adopted at the 25th Governor’s Meeting on 6 November 2006. It is now promulgated and shall enter into force as of January 1 2007.

Governor Zhou Xiaochuan 14 November 2006

Article 1. This set of rules is formulated in line with the provisions of the Anti-money Laundering Law of the People’s Republic of China, the Law of the People’s Bank of China of the People’s Republic of China and other laws and administrative regulations to prevent money laundering activities, standardise the regulation over anti-money laundering and anti-money laundering work of financial institutions, and safeguard the financial order.

Article 2. This set of rules is applicable to the following financial institutions that are set up according to law inside the People’s Republic of China:

1. commercial banks, urban credit cooperatives, rural credit cooperatives, postal saving agencies, and policy banks,

2. securities firms, futures brokers, fund management companies,

3. insurance companies, insurance assets management companies,

4. trust and investment companies, financial assets management companies, accounting companies, financial leasing companies, automobile financing companies, currency brokerage companies,

5. other financial institutions as identified and published by the People’s Bank of China (PBC).

Institutions that are engaged in the exchange and discounting business, payment and settlement operations, and sales of fund shall also be subject to the provisions of this set of rules governing the anti-money laundering of financial institutions.

Article 3. The People’s Bank of China (PBC) is the administrative authority under the State Council for anti-money laundering and responsible for the regulation over the anti-money laundering of financial institutions. China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), and China Insurance Regulatory Commission (CIRC) shall exercise regulation for anti-money laundering within their respective powers.

The PBC shall cooperate with related departments and institutions of the State Council and the judicial authorities in the course of discharging its function of anti-money laundering.

Article 4. The PBC shall represent the Chinese government in the conduct of international cooperation on anti-money laundering as mandated by the State Council. The PBC may set up cooperation mechanisms with the anti-money laundering authorities of other countries or regions, and exercise monitoring and regulation over cross-border anti-money laundering.

Article 5. The PBC shall implement the following regulatory obligations with regard to anti-money laundering according to law:

1. draft independently or jointly with the CBRC, CSRC, and CIRC rules governing the anti-money laundering of financial institutions,

2. be responsible for the capital monitoring of anti-money laundering of RMB and foreign currencies,

3. monitor and inspect the implementation of duties of anti-money laundering on the part of financial institutions,

4. investigate into suspicious trading activities within its powers and functions,

5. report to the investigation authorities regarding trading activities that are suspected to have involved money laundering crimes,

6. exchange with overseas anti-money laundering agencies related information and data in line with the provisions of related laws and administrative regulations,

7. other related functions as specified by the State Council.

Article 6. The PBC shall set up a China Anti-money Laundering Monitoring and Analysis Centre to be responsible for:

1. receiving and analysing reports of large value trading of RMB or foreign currencies and suspicious trading,

2. developing national anti-money laundering database, keeping safely information submitted by financial institutions regarding large value trading and suspicious trading,

3. reporting to the PBC its analysis results as requested,

4. requesting financial institutions to supplement reports of large value trading of RMB or foreign currencies and suspicious trading in a timely manner,

5. exchanging information and data with overseas related institutions as approved by the PBC,

6. other duties as specified by the PBC.

Article 7. The PBC and its working staff shall keep confidential information obtained in the course of discharging their obligations according to law with regard to anti-money laundering and shall not provide the said information to external sources in violation of regulations.

China Anti-money Laundering Monitoring and Analysis Centre and its working staff shall keep confidential the ID information of clients, and information of large value trading and suspicious trading obtained as a result of discharging their duties according to law with respect to anti-money laundering, and shall not provide the said information to any unit or individuals unless following the provisions of law.

Article 8. Financial institutions and their branches shall develop and improve according to law the anti-money laundering internal control system, set up a special agency for anti-money laundering or designate internal units to be responsible for anti-money laundering, draft anti-money laundering internal working procedures and controlling measures, provide anti-money laundering training to working staff, and enhance the ability of anti-money laundering work.

Leadership teams of financial institutions and their branches shall be responsible for the effective implementation of the internal control system with regard to anti-money laundering.

Article 9. Financial institutions shall develop and implement a client ID identification system as specified.

1. conduct identification over the identity of clients who want to develop business relationships or handle one-off financial operations with value of over the specified amount, and request the clients to produce their genuine and valid ID or other identity testifying documents, conduct verification and registration, and update without delay in the case of changes to the information of client identity,

2. become familiar with the purpose and nature of trading from clients as requested and identify effectively the beneficiaries of trading,

3. in the case of discovering abnormalities in the course of handling operations or having doubts with regard to the authenticity, validity and completeness of the identity documents of clients obtained previously, conduct client identity identification anew,

4. ensure that overseas financial institutions that act as their agents or have a similar business relationship as agent conduct effective client identity identification, and are able to obtain the information of client identities from the said overseas financial institutions.

The detailed rules of implementation as mentioned above shall be jointly drafted by the PBC, CBRC, CSRC, and CIRC.

Article 10. Financial institutions shall within a specified period of time keep safely the data of clients’ identities and data and figures, business proof, account books and other related information that is able to reflect each and every trading.

The detailed rules of implementation as mentioned above shall be jointly drafted by the PBC, CBRC, CSRC, and CIRC.

Article 11. Financial institutions shall report as specified to China Anti-money Laundering Monitoring and Analysis Centre large value RMB or foreign currencies trading and suspicious trading.

The detailed rules of implementation as mentioned above shall be worked out by the PBC separately.

Article 12. The PBC, jointly with CBRC, CSRC, and CIRC, shall provide guidance to th self-disciplined associations of the financial industries with regard to the formulation of working guidelines on anti-money laundering.

Article 13. Financial institutions in the case of becoming suspicious of a crime being committed in the course of implementing their duties of anti-money laundering shall report in a timely fashion in writing to the local branches of the PBC and local public security authorities.

Article 14. Financial institutions and their working staff shall provide assistance according to law to judicial authorities and the administrative law enforcement bodies in the crackdown on money laundering.

Overseas branches of financial institutions shall abide by the laws and regulations of their host countries or regions regarding anti-money laundering, and provide assistance to anti-money laundering authorities in the host countries or regions.

Article 15. Financial institutions and their working staff shall keep confidential the ID information of clients, and information of trading obtained as a result of discharging their duties according to law with respect to anti-money laundering, and shall not provide the said information to any unit or individuals unless following the provisions of law.

Financial institutions and their working staff shall keep confidential their reporting of suspicious trading, their assistance to the PBC in investigating suspicious trading and other working information on anti-money laundering, and shall not provide the said information to clients and other people in violation of regulations.

Article 16. The submission of large value and suspicious trading reports by financial institutions and their working staff according to law are under legal protection.

Article 17. Financial institutions shall in line with the provisions of the PBC submit statistics and information of anti-money laundering as well as items related to anti-money laundering in their auditing reports.

Article 18. The PBC and its branches may, in line with the need to implement anti-money laundering duties, adopt the following measures and conduct on-the-spot anti-money laundering investigations:

1. entering into financial institutions to conduct inspection,

2. consulting the working staff of financial institutions and requesting them to give explanations regarding certain items under inspection,

3. consulting, making copies of documents and information related to items under inspection of the financial institutions, and sealing documents and materials that are likely to be transferred, destroyed, concealed or altered,

4. inspecting the system that the financial institutions apply in their computers to manage the business data.

When conducting on-the-spot inspections, the PBC or its branches shall fill in the form of examination and approval for items subject to on-the-spot inspection, list out targets and content of inspection, timing, and others, and implement as such upon approval by the leadership team members of the PBC or its branches.

When conducting on-the-spot inspection, the PBC or its branches shall prepare a letter of opinion of on-the-spot inspection, stamp with a seal and deliver it to the institutions under inspection. The content of the on-the-spot inspection shall include conditions of inspection, assessment of inspection, how to improve and measures to take.

Article 19. The PBC and its branches shall, in line with the needs to implement their anti-money laundering duties, hold conversations with board members and senior management of financial institutions, and ask them to give explanations with regard to the major items involving their implementation of anti-money laundering obligations.

Article 20. The PBC should notify the CBRC, CSRC, and CIRC in cases of necessity as the result of inspection in the case of conducting on-the-spot inspections.

Article 21. In cases where the PBC or its provincial level branches reveal suspicious trading activities and consider it necessary for investigation and verification, they may investigate through the financial institutions regarding the client account information, trading record and other related information of the suspicious trading activities, and the financial institutions and their working staff shall provide cooperation.

The PBC or its provincial level branches mentioned in the above paragraph include headquarters of the PBC, headquarters in Shanghai, branches, operations departments, central sub-branch of provincial capital cities, and central sub-branches of vice provincial level capitals.

Article 22. In the course of investigating suspicious trading activities, the PBC or its provincial level branches may make enquiries of the working staff of financial institutions, asking them to explain the situations, consult and make copies of account information, trading information and other related information of clients of the financial institutions under inspection, and may keep safely documents and materials that are likely to be transferred, concealed, altered or destroyed.

In the course of investigating into suspicious trading activities, the number of investigators shall not be fewer than 2, and they shall issue their certificate for conducting the investigations and the letter of notice of investigation issued by the PBC or its provincial level branches. Consulting, copying or sealing the account information, trading record and other related materials of clients of financial institutions under inspection shall obtain written approval from the leadership team members of the PBC or its provincial level branches.

Inquiry shall result in written record, which shall be given to the parties which have been consulted for verification. In the case of omission or mistakes, the parties that have been questioned may ask for supplementation or rectification. The said parties shall sign or stamp on the record upon confirmation and the investigators shall do the same as well.

When investigators seal up material for safe keeping, they shall, with staff of the organisation make a clear inventory of the contents, and draw up a bipartite list. Both the investigators and a member of staff shall sign or stamp the said list. One copy shall be given to the organisation, and one copy kept for future reference.

Article 23. In cases where investigations cannot clear the suspicion of money laundering, the investigation agencies that have jurisdiction over the cases shall be notified immediately. In cases where the clients request to transfer the capital from the account involved in the investigation abroad, the financial institutions shall immediately report to the local branches of the PBC. Upon the approval by the leadership team members of the PBC, the PBC may take temporary freezing measures and notify the financial institutions in writing and the financial institutions shall implement the measures immediately upon receiving the notice.

In cases where the investigation authority considers it necessary to continue the freezing upon receiving the report of the case, financial institutions shall provide cooperation for freezing when receiving notice from the investigation authorities for continued freezing. In cases where the investigation authorities do not see the necessity, the PBC shall, upon receiving such information from the investigation authorities, notify the financial institutions in writing, to terminate the temporary freezing.

Temporary freezing shall not last longer than 48 hours. Financial institutions shall relieve the temporary freezing immediately after 48 hours after having received the request from the PBC for taking temporary freezing measures, but not from the investigation authorities afterwards.

Article 24. The working staff of the PBC and its branches responsible for anti-money laundering work shall be subject to administrative sanctions according to law in cases where they are found to be guilty of any of the following:

1. inspecting, investigating or taking temporary freezing measures in violation of regulations,

2. disclosing national secrets, commercial secrets or personal privacy known to them as a result of anti-money laundering,

3. imposing administrative sanctions onto related institutions and persons in violation of regulations,

4. other acts of failing to implement duties according to law.

Article 25. Financial institutions in violation of the provisions of this set of rules shall be subject to punishments imposed by the PBC or the branches above its central sub-branch in line with the provisions of articles 31 and 32 of the Anti-money Laundering Law of the People’s Republic of China. In view of different circumstances, it may also make recommendations to the CBRC, CSRC or CIRC with regard to the following:

1. requesting the financial institutions to stop business and undergo consolidation or cancellation of business license,

2. cancelling the post-assumption qualifications of the board members and senior management directly responsible for the violations and other persons directly involved in the violations, and prohibiting them from engaging in any financial work,

3. requesting the financial institutions to impose disciplinary sanctions onto board members and senior management directly responsible for the violations and other persons directly involved in the violations.

In cases where the branches of the PBC at county (city) level discover violation of this set of rules by financial institutions, they shall report it to their immediate upper level authorities, which shall issue punishment or give their recommendations in line with the provisions of the above mentioned paragraph.

Article 26. When imposing administrative punishments onto acts of financial institutions in violation of the provisions of this set of rules, the PBC and its central sub-branches at the city or regional levels shall abide by the related provisions of the Regulations of the People’s Bank of China on Administrative Sanctions.

Article 27. This set of rules shall enter into force as of 1 January 2007 and the Anti-Money Laundering Rules of Financial Institutions released by the People’s Bank of China on 3 January 2003 shall be abolished at the same time.