COMMERCIAL BANKING LAW

    Chapter I  General Provisions

    Chapter ll  Establishment and Organization of A Commercial Bank

    Chapter lll  Protection of Depositors

    Chapter IV  Basic principles for Loans and Other Businesses

    Chapter V  Financial Accounting

    Chapter VI  Supervision and Administration

    Chapter VII  Takeover and Termination

    Chapter VIII  Legal Liabilities

    Article 1  This Law is formulated to protect the legitimate rights and
interests of commercial banks, depositors and other clients, standardize the
behavior of commercial banks, improve the quality of funds, strengthen
supervision and administration, ensure safety and soundness of commercial
banking, maintain a normal financial order and promote the development of the
socialist market economy.

    Article 2  The commercial banks referred to in this Law are bodies
corporate established in accordance with this Law and the Company Law of the
People’s Republic of China to receive money deposits from the public, extend
loans, provide settlement services and do other relevant businesses.

    Article 3  A commercial bank may engage in some or all of the following
businesses:

    (1) receiving money deposits from the public;

    (2) extending short, medium and long-term loans;

    (3) providing domestic and international settlement services;

    (4) discounting bills;

    (5) issuing financial bonds;

    (6) acting as agent of issuing, cashing and underwriting government bonds;

    (7) dealing in government bonds;

    (8) inter-bank call-money business;

    (9) dealing or acting as agent in foreign exchange transactions;

    (10) providing L/c service and guarantee;

    (11) acting as agent in collection and payment and insurance business;

    (12) providing safe deposit box service;

    (13) other businesses approved by the People’s Bank of China.

    The business scope of a commercial bank is defined by the statute thereof
and reported to the People’s Bank of China for approval.

    Article 4  A commercial bank operates independently, takes up
responsibility for all risks it may encounter and for its own profits and
losses it may bear, and exercises self-regulating mechanism on the management
principle of economic efficiency, safety and liquidity.

    A commercial bank shall conduct its business in accordance with the law,
free from interference by any department or individual.

    A commercial bank shall assume civil responsibilities independently with
its entire assets as a body corporate.

    Article 5  A commercial bank shall abide by the principle of equality,
voluntariness, fairness, honesty and good faith in doing business with its
clients.

    Article 6  A commercial bank shall protect its depositors’ legitimate
rights and interests from encroachment by any organization or individual.

    Article 7  In doing credit business, a commercial bank shall strictly
examine the credibility of a borrower and persist in extending loans against
collateral in order to ensure recalling loans on time.

    A commercial bank is protected by law to retrieve the principal and
interests of a loan from the borrower thereof in accordance with the law.

    Article 8  A commercial hank shall abide by the relevant provisions of the
law and administrative decrees and regulations in doing business and shall not
impair the interests of the state or the public.

    Article 9  A commercial bank shall abide by the principle of fair
competition in doing its business and refrain from unfair competition.

    Article 11  The establishment of a commercial bank shall require the
examination and approval by the People’s Bank of China.

    No organization or individual shall receive money deposits from the public
or do any other businesses of a commercial bank or use the post_title of “bank”
without the approval of the People’s Bank of China.

    Article 12  The establishment of a commercial bank shall satisfy the
following requirements:

    (1) having its statute in pursuance of this Law and the Company Law of the
People’s Republic of China;

    (2) having the minimum registered capital defined by this Law;

    (3) having chairman of directors (president), general manager and other
senior managerial personnel with expertise and professional experience
required by their positions;

    (4) having complete organization and management;

    (5) having up-to-standard business site, safety measures and other
facilities relevant with the business thereof.

    The People’s Bank of China in examining the application for the
establishment of a commercial bank should take into account the need for
economic growth and the competition of the banking industry.

    Article 13  The minimum registered capital for the establishment of a
commercial bank shall be RMB one billion yuan (RMB 1,000,000,000 yuan). Of the
commercial banks, an urban cooperative commercial bank shall need a minimum
registered capical of RMB 100 million yuan (RMB 100,000,000 yuan) and a rural
cooperative commercial bank shall need a minimum registered capital of RMB 50
million yuan (RMB 50,000,000 yuan). Registered capital herein referred to
should be paid-up capital.

    The People’s Bank of China may readjust the floor amount of the registered
capital necessary for the establishment of a commercial bank in the light of
economic development, but the amount shall not be lower than those specified
in the previous paragraph.

    Article 14  The applicant shall apply to the People’s Bank of China for
the establishmemt of a commercial bank by submitting the documents and
information listed below:

    (1) an application for the establishment of a commercial bank, specifying
the name, location, registered capital and business scope of the bank thereof;

    (2) a feasibility study report;

    (3) other documents and information required by the People’s Bank of China.

    Article 15  The application having been examined to be in compliance with
the provisions of Article 14 of this Law, the applicant shall fill a formal
application form and submit the documents and information listed below:

    (1) a draft of the statute of the commercial bank to be established;

    (2) qualification documents of the senior managerial staff to be employed;

    (3) a certificate of capital confirmation from a legitimate capital
confirmation authority;

    (4) a list of the names, capital contributions and shares of the share
holders of the commercial bank;

    (5) credit certificate and other relevant information of the share
holders, each holding more than ten percent of the registered capital of the
commercial bank;

    (6) the guideline and plan for the operation of the commercial bank;

    (7) information of the business site, safety measures and other facilities
relevant with the business of the commercial bank;

    (8) other documents and information required by the People’s Bank of China.

    Article 16  Having been approved for establishment, the commercial bank
shall be issued banking permit by the People’s Bank of China and with it
register with the Administration for Industry and Commerce for a business
license.

    Article 17  The Company Law of the People’s Republic of China is
applicable to the form and structure of the organization of a commercial bank.

    A commercial bank which was established prior to the promulgation of this
Law may follow the original provisions if its organizational form and
structure do not entirely conform with the Company Law of the People’s
Republic of China, and the time limit for the retention thereof shall be
decided by the State Council.

    Article 18  A commercial bank solely owned by the state shall have a board
of supervisors. The Board of Supervisors shall be composed of representatives
of the People’s Bank of China and governmental departments, experts from other
relevant departments and representative of the staff of the bank. The way of
establishing the Board of Supervisors shall be defined by the State Council.

    The Board of Supervisors shall execise control of the solely state-owned
commercial banks over the quality of credit funds, the ratio of assets and
liabilities, the hedging and appreciation of the state-owned assets and other
relevant matters of the bank and the behavior of its high ranking managerial
personnel violating the law, administrative decrees and regulations or statute
or acts damaging the interests of the bank.

    Article 19  A commercial bank may set up its branches within and outside
the territory of the People’s Republic of China in keeping with its business
needs. A branch thereof shall be set up with the approval of the People’s Bank
of China. Branches of a commercial bank inside the People’s Republic of China
need not be set up in conformity with administrative divisions.

    A commercial bank in setting up a branch within the territory of the
People’s Republic of China shall allocate to it a working capital in keeping
with the business scope thereof as is stipulated. The total sum of the working
capital to be allocated to all branches shall not exceed sixty percent of the
total capital of the commercial bank proper.

    Article 20  For the establishment of a branch, the applying commercial
bank shall submit the documents and information listed below:

    (1) an application for establishing a commercial bank branch whereby
should be specified the name, amount of working capital, business scope and
the locations of the headquarters and branch of the commercial bank;

    (2) a financial report of the last two years of the applicant;

    (3) certificates of qualifications of the senior managerial officials to
be appointed;

    (4) the business guideline and plan;

    (5) information related to the business site, safety measures and other
facilities relevant with the business thereof;

    (6) other documents and information required by the People’s Bank of China.

    Article 21  Having been approved to be established, a commercial bank
branch shall be granted a banking permit by the People’s Bank of China, and
with the permit shall register with the Administration for Industry and
Commerce and obtain a business license.

    Article 22  A commercial bank shall apply to its branches a financial
system of unified accounting and centralized fund allocation and
level-by-level management.

    The branch of a commercial bank shall not be qualified as a body corporate
and it shall do business within the scope authorized by the headquarters which
shall assume the civil responsibilities thereof.

    Article 23  Having been approved to be established, a commercial bank and
its branches shall be announced to the public by the People’s Bank of China.

    When a commercial bank or its branch has not started operation for over
six months from the date of being granted a business license without proper
reason or has automatically suspended operation for over six consecutive
months after starting its operation, the People’s Bank of China shall revoke
its banking permit and make a public announcement thereof.

    Article 24  In the event of one of the changes listed below, a commercial
bank shall need to obtain the approval from the People’s Bank of China:

    (1) change of the name of the commercial bank;

    (2) change of the registered capital;

    (3) change of the business sites of the head office and/or its branch(es)
of the bank;

    (4) readjustment in business scope;

    (5) change of share holders, each holding more than ten percent of the
total capital or total shares of the commercial bank;

    (6) revision of the statute;

    (7) other changes specified by the People’s Bank of China.

    When a commercial bank needs to replace its chairman of the board of
directors, or general manager with a new one, the qualifications of the
appointee shall be reported to the People’s Bank of China for examination.

    Article 25  The Company Law of the People’s Republic of China is
applicable to the split and merger of commercial banks.

    The split or merger of commercial banks shall require the examination and
approval by the People’s Bank of China.

    Article 26  A commercial bank shall use the banking permit pursuant to law
and administrative decrees and regulations. It is prohibited to counterfeit,
tamper with, transfer, lease or lend the banking permit.

    Article 27  Anyone who has one of the following backgrounds shall not be
fit for high managerial positions in a commercial bank:

    (1) having once been sentenced to punishment for the crimes of
embezzlement, bribery, illegal possession of property, misappropriation of
public property or disruption of social economic order, or having been
deprived of political rights for crimes;

    (2) having served as a director of the board of directors, the director or
manager of a company which went bankrupt because of mismanagement and having
been personally responsible for the bankruptcy;

    (3) Having been the legal representative of a company whose business
license had been revoked on account of violation of the law and having been
personally responsible thereof;

    (4) Having failed to repay a fairly large debt already due.

    Article 29  A commercial bank in its savings deposit business shall abide
by the principle of voluntariness in depositing, freedom of withdrawal,
interest on every deposit and keeping secret for the depositor.

    With regard to savings deposits of individuals, a commercial bank has the
right to reject the demand of any deparment or individual for investigation,
freezing, withholding or transferring a savings deposit, unless it is
otherwise defined by the law.

    Article 30  With regard to deposits of any organization, a commercial bank
has the right to reject the demand of any other organization or individual for
investigation; unless it is otherwise defined hy the law or administrative
decrees and regulations; it has the right to reject the demand of any other
organization or individual for freezing, withholding or transferring such a
deposit, unless it is otherwise defined by the law.

    Article 31  A commercial bank shall fix its interest rates for deposits
pursuant to the ceiling and floor of interest rates defined by the People’s
Bank of China and make public announcement thereof.

    Article 32  A commercial bank shall place a required reserve with the
People’s Bank of China and keep adequate standby reserve in accordance with
the stipulations by the People’s Bank of China.

    Article 34  A commercial bank shall conduct its loan business in
accordance with the need for the development of the national economy and
social progress and under the guidance of the state industrial policy.

    Article 35  A commercial bank shall conduct strict examination of the
usage, capability and form of repayment as well as other relevant matters of a
borrower in order to extend a loan.

    A commercial bank shall implement a system in which the examination and
the actual extending of a loan are conducted by separate departments and the
examination and approval of a loan are conducted at different levels.

    Article 36  A commercial bank shall extend a loan against a security, and
conduct strict examination of the repaying capability, the ownership and value
of the mortgage or pledge, and the feasibility of the realization of the
mortgage or pledge.

    A borrower may be exempted from securities after the commercial bank has
conducted examination and found it to have a high credit rating and to have
the capability of repayment.

    Article 37  A commercial bank shall sign a written contract with its
borrower on the extending of a loan. The contract shall specify the category,
usage, amount, rate of interest, date and form of repayment, default
liabilities and other matters deemed as necessary by the two parties.

    Article 38  A commercial bank shall fix its interest rates for loans in
accordance with the ceiling and floor for the rates of interest for loans
fixed by the People’s Bank of China.

    Article 39  A commercial bank in its loan business shall abide by the
regulations on the ratios of assets and liabilities listed below:

    (1) the capital adequacy rate shall not fall short of eight percent;

    (2) the ratio of the outstanding balance of loans to that of deposits
shall not exceed seventy-five percent;

    (3) the ratio of the outstanding balance of liquid assets to that of
liquid liabilities shall not fall short of twenty-five percent;

    (4) the ratio of the outstanding balance of loans to one borrower to that
of the capital of the bank shall not exceed ten percent;

    (5) other stipulations by the People’s Bank of China on asset and
liability management.

    When a commercial bank which was established prior to the promulgation of
this Law is found to have its ratios of assets and liability at variance with
the stipulations hereinbefore, it is required to conform to the stipulations
within a designated time limit. Concrete rules for the implementation shall be
defined by the State Council.

    Article 40  A commercial bank shall not extend unsecuried loans to related
persons; and shall not provide related persons with securied loans on
conditions more favorable than those to a borrower of a similar loan.

    The related persons mentioned in the previous paragraph refer to:

    (1) the members of the board of directors, members of the board of
supervisors, managerial personnel and staff of the credit business department
of a commercial bank, and their close relatives;

    (2) the company, enterprise or other economic organization wherein the
aforesaid persons have made investment or assumed senior managerial positions.

    Article 41  No organization or individual may force a commercial bank to
extend a loan or provide guarantee for a loan. A commercial bank shall have
the right to refuse any organization’s or individual’s demand for a loan or
guarantee.

    A commercial bank owned solely by the state should provide loans for
special projects approved by the State Council. Losses resulting from such
loans shall be compensated with appropriate measures taken by the State
Council. Concrete measures shall be defined by the State Council.

    Article 42  A borrower shall repay the principal and interest of a loan on
schedule.

    When a borrower fails to repay a secured loan, the commercial bank has the
right to be repaid the principal and interest of the loan or the priority of
getting paid with the collateral thereof. A commercial bank shall dispose of
the real estate or stocks on mortgage or pledge within a year from the date of
obtaining.

    A borrower shall assume the responsibility for failure to repay the
unsecured loan falling due in accordance with the contract thereof.

    Article 43  A commercial bank shall not engage in trust investment or
stock business, or invest in real estate not for its own use within the
People’s Republic of China.

    A commercial bank shall not invest in non-bank financial institutions or
enterprises within the People’s Republic of China. A commercial bank which has
made investment in non-bank financial institutions or enterprises prior to the
promulgation of this Law shall be subject to other provisions stipulated by
the State Council.

    Article 44  A commercial bank in handling settlements such as acceptance,
remittance and collection shall make timely cashing and entries pursuant to
relevant provisions without detaining bills or instruments or dishonoring them
in violation of regulations. The relevant provisions for the time limit for
bill acceptance and entries in accounting books should be made public.

    Article 45  A commercial bank shall apply for approval for issuing
financial bonds or seeking loans outside China in accordance with the law and
administrative decrees.

    Article 46  Inter-bank loan shall be subject to the time limit defined by
the People’s Bank of China and the maximum time for such financing shall not
exceed four months. It is prohibited to use call money to extend loans on
fixed assets or to make investment.

    The call money for lending shall be only the idle fund after depositing
required reserve, leaving adequate standby reserve and repayment of loans
falling due to the People’s Bank of China. The call money for borrowing shall
be used to meet the position shortage in interbranch settlement and
interbranch remittance and temporary needs for turnover of funds.

    Article 47  A commercial bank shall not receive money deposits or extend
loans by raising or lowering interest rates or by other unjustifiable means in
violation of regulations.

    Article 48  An enterprise or undertaking may open a principal account with
a commercial bank of its own choice for day to day transfer and settlement of
accounts and cash receipt and payment, but it shall not open two or more
principal accounts.

    No organization or individual shall deposit the fund of an organization in
an account opened in the name of an individual.

    Article 49  A commercial bank shall fix its business hours to the
convenience of its clients and make public announcement thereof. A commercial
bank shall conduct its business during its announced business hours and shall
not suspend business or shorten its business hours at will.

    Article 50  A commercial bank shall collect commission fees on handling
business and providing services in accordance with the stipulations of the
People’s Bank of China.

    Article 51  A commercial bank shall preserve all the financial statements,
business contracts and other information for a specified period in accordance
with relevant state regulations.

    Article 52  The staff of a commercial bank shall abide by the law,
administrative decrees and regulations and other rules for the administration
of various businesses and shall not have wrong conducts listed below:

    (1) taking advantage of their positions to demand or accept bribes, or
violating relevant state regulations to accept commissions or service fees
under any pretext;

    (2) taking advantage of their positions to commit embezzlement,
misappropriation or unlawful possession of the funds of the bank or of clients;

    (3) providing loans or guarantee to relatives or friends in violation of
regulations;

    (4) holding positions concurrently at other economic institution(s);

    (5) other acts in violation of the law, administrative decrees and
regulations and rules in business management.

    Article 54  A commercial bank shall establish and improve its financial
accouncing system in accordance with the law and the state unified accounting
standards as well as the relevant stipulations of the People’s Bank of China.

    Article 55  A commercial bank shall, in accordance with relevant state
regulations, truthfully and in an all-round way record and reflect its
business activities and financial position, produce its annual financial
accounting report and timely submit its financial statements to the People’s
Bank of China and the treasury department. A commercial bank shall not
establish accounting books other than those legally specified.

    Article 56  A commercial bank shall announce its business performance and
audited statement of the previous fiscal year within three months after the
end of every fiscal year in accordance with the stipulations of the People’s
Bank of China.

    Article 57  A commercial bank shall retain a reserve against bad and
doubtful accounts and write off bad debts in pursuance of relevant state
regulations.

    Article 59  A commercial bank shall formulate its business rules,
establish and improve its business management, the system of cash control and
its security system in accordance with the stipulations of the People’s Bank
of China.<