GUARANTEE LAW

    Chapter I  General Provisions

    Chapter II  Guaranty

        Section 1  Guaranty and Guarantor

        Section 2  Contract of Guaranty and Mode of Guaranty

        Section 3  Liability of Guaranty

    Chapter III  Mortgage

        Section 1  Mortgage and Gage

        Section 2  Contract of Mortgage and Mortgage Registration

        Section 3  Effect of Mortgage

        Section 4  Realization of Mortgage

        Section 5  Mortgage of Maximum Amount

    Chapter IV  Pledg

        Section 1  Pledge of Movables

        Section 2  Pledge of Rights

    Chapter V  Lien

    Chapter VI  Deposit

    Article 1  This Law is formulated for the purpose of promoting
the capital flow and commodity circulation, safeguarding the
realization of obligatory right, and developing the socialist market
economy.

    Article 2  In such economic activities as loans, sales, goods
freight and hire of processing work, etc., where the creditor needs to
safeguard the realization of his obligatory right by the way of
guarantee, a guarantee may be established in accordance with the
provisions of this Law.

    The modes of guarantee provided for in this Law shall be guaranty,
mortgage, pledge, lien and deposit.

    Article 3  In activities of guarantee, the principle of equality,
voluntariness, fairness and good faith shall be complied with.

    Article 4  When a third party offers the creditor a guarantee on
behalf of the debtor, he may require the debtor to offer a counter-
guarantee.

    The provisions on guarantee of this Law shall be applicable
to counter-guarantee.

    Article 5  A guarantee contract shall be an accessory contract to
the master contract. Where the master contract is invalid, the
guarantee contract shall also be invalid. Where an agreement is
otherwise reached in the guarantee contract, that agreement shall
prevail.

    Section 1  Guaranty and Guarantor

    Article 6  In this Law, guaranty means that the guarantor and the
creditor agree that, when the debtor fails to perform his debt, the
guarantor will perform the debt or bear the liability in accordance
with the agreement.

    Article 7  A guarantor may be a legal person, other organization
or a citizen who has ability to discharge of debts on behalf of
others.

    Article 8  The state administrative departments shall not be a
guarantor, unless they, with the approval of the State Council,
transfer loans for the purpose of using the loans of foreign
governments or international organizations.

    Article 9  Such institutions and social organizations as schools,
kindergartens and hospitals, etc., which are established for the
purpose of public interest shall not be a guarantor.

    Article 10  A branch or functional department of an enterprise as
legal person shall not be a guarantor.

    If a branch of an enterprise as legal person has been delegated in
writing by the legal person, it may offer the guaranty within the
delegation extent.

    Article 11  No organization or individual may oblige enterprises
or financial institutions such as a bank to offer guaranty for others;
enterprises and financial institutions such as a bank shall have the
right to refuse to offer guaranty for others when they are obliged to.

    Article 12  Where there are two or more guarantors for the same
debt, the guarantors shall, according to their own guaranty shares
agreed in the guaranty contract, bear the guaranty liability. In case
of no agreement on the guaranty shares, the guarantors shall bear the
joint liability. Thus the creditor may demand any of the guarantors to
bear the entire guaranty liability, and any of the guarantors shall
bear the obligation to guarantee the entire realization of the
obligatory right. The guarantor who has borne the guaranty liability
shall be enpost_titled to claim repayment from the debtor, or to demand
other guarantors bearing the joint liability to satisfy him their
shares that they shall bear.

    Section 2  Guaranty Contract and Guaranty Mode

    Article 13  The guarantor and creditor shall enter into a
guaranty contract in written form.

    Article 14  The guarantor and creditor may enter into a guaranty
contract respectively as for a single master contract, and may also,
within the maximum obligatory right amount as for a loan contract
occurred continuously during a certain period or a commodity trade
contract, enter into a guaranty contract.

    Article 15  A guaranty contract shall contain the following
contents:

    1. the categories and amount of a master obligatory right
guaranteed;

    2. the time limitation to perform the debt by the debtor;

    3. the guaranty mode;

    4. the scope guaranteed by the guaranty;

    5. the time period of guaranty; and

    6. other items which the two parties consider necessary to agree.

    If a guaranty contract has the contents prescribed in the
proceeding paragraph incomplete, it may be supplemented.

    Article 16  The guaranty mode contains:

    1. the general guaranty; and

    2. the joint liability guaranty.

    Article 17  That the parties in a guaranty contract agree that,
when the debtor cannot perform the debt, the guaranty liability is to
be borne by the guarantor, is the general guaranty.

    The guarantor of a general guaranty may, without trial or
arbitration on the disputes of a master contract, and before the debt
cannot be performed yet with compulsory enforcement on the debtors’
property according to the law, refuse to bear the guaranty liability
for the creditor.

    When there is any one of the following circumstances, the
guarantor shall not exercise the right prescribed in the proceeding
paragraph:

    1. the address of the debtor has changed, so that it becomes a
major difficulty for the creditor to demand him to perform the debt;

    2. the people’s court accepting a debtor’s bankruptcy case, orders
suspension of execution procedure; or

    3. the guarantor abandons the right described in the proceeding
paragraph in written form.

    Article 18  That the parties in a guaranty contract agree that
the guarantor and debtor bear the joint liability on a debt, is the
joint liability guaranty.

    If the debtor of a joint liability guaranty cannot perform the
debt at the date of expiration of the debt performance time limitation
prescribed in the master contract, the creditor may demand the debtor
to perform the debt, and may also demand the guarantor to bear the
guaranty liability within the extent of guaranty.

    Article 19  If no agreement or the agreement is not clear on the
guaranty mode by the parties, the guaranty liability shall be borne
according to the joint liability guaranty.

    Article 20  The guarantor of a general guaranty and joint
liability guaranty shall be enpost_titled to have the counterplead right of
the debtor. If the debtor abandons his counterplead right, the
guarantor shall still be enpost_titled to have right to counterplead.

    The counterplead right means that the right of, when the creditor
exercises his obligatory right, the debtor according to legal reasons
executing the petition right against the creditor.

    Section 3  Guaranty Liability

    Article 21  The guaranteed scope of a guaranty concludes the
master obligatory right and its interest, contractual fine, damage
compensation and expense of credit realization. If there is an
agreement otherwise in the guaranty contract, it shall be complied
with.

    If no agreement or the agreement is not clear on the guaranteed
scope of a guaranty by the parties, the guarantor shall bear the
liability to the entire debt.

    Article 22  During the time period of guaranty, where the
creditor assigns the master obligatory right to a third party
according to the law, the guarantor continues to bear the guaranty
liability within the original guaranteed scope of the guaranty. If
there is an agreement otherwise in the guaranty contract, it shall
be complied with.

    Article 23  During the time period of guaranty, if the creditor
wants to permit the debtor to assign the debt, he shall get the
written consent from the guarantor, the guarantor bears no guaranty
liability on the debt assigned without his consent.

    Article 24  If the creditor and debtor agree to change the master
contract, they shall get the written consent from the guarantor,
without this written consent, the guarantor bears no longer guaranty
liability. If there is an agreement otherwise in the guaranty
contract, it shall be complied with.

    Article 25  If no agreement on guaranty period between the
guarantor and creditor of a general guaranty, the guaranty period
shall be 6 months from the date of expiration of the master debt
performance time limitation.

    During the guaranty period agreed in the contract or described in
the proceeding paragraph, if the creditor has not filed a case against
the debtor or applied for the arbitration, the guarantor shall be
exempted from the guaranty liability; if the creditor has filed a case or
applied for the arbitration, the guaranty period shall be applied to the
provisions on the discontinuance of limitation of action.

    Article 26  If no agreement on a guaranty period between the
guarantor and creditor of a joint liability guaranty, the creditor
shall be enpost_titled to have the right within 6 months from the date of
expiration of the master debt performance time limitation to demand
the guarantor to bear the guaranty liability.

    During the guaranty period agreed in the contract or described in
the proceeding paragraph, if the creditor has not demanded the
guarantor to bear guaranty liability, the guarantor shall be exempted
from the guaranty liability.

    Article 27  The guarantor shall make a guaranty on a credit
occurred continuously according to the provisions of Article 14 in
this law, if no agreement on guaranty time period, the guarantor may
at all times inform the creditor in written form to terminate the
guaranty contract, however the guarantor shall, as for the credit
occurred before having informed the creditor, bear guaranty liability.

    Article 28  Where there are both a guaranty and a guarantee of
real right on a same obligatory right, the guarantor shall bear the
guaranty liability on the obligatory right except the guarantee of
real right.

    If the creditor abandons the guarantee of real right, the
guarantor shall, within the scope of right abandoned by the creditor,
be exempted from the guaranty liability.

    Article 29  Where a branch of an enterprise as a legal person
enters into a guaranty contract with the creditor without written
delegation from the enterprise as legal person or exceeding the extent
of delegation, this contract shall be invalid or the part exceeding
the extent of delegation shall be invalid; if the creditor and the
enterprise as legal person has default, they shall bear the relevant
civil liability according to their fault respectively; if the creditor
has no default, the civil liability shall be borne by the enterprise
as legal person.

    Article 30  If there is any one of the following circumstances,
the guarantor shall not bear the civil liability:

    1. the parties of the master contract collude to defraud the
guarantor to offer a guaranty; or

    2. the creditor of the master contract take means of fraud or
coercion to force the guarantor to offer a guaranty against his true
intention.

    Article 31  After the guarantor has borne the guaranty liability,
he shall be enpost_titled to claim repayment from the debtor.

    Section 1  Mortgage and Gage

    Article 33  The mortgage prescribed in this Law, means a
guarantee that a debtor or a third party does not transfer the
possession of the property listed in Article 34 in this Law, make the
said property as obligatory right. When the debtor does not perform
the debt, the creditor shall be enpost_titled to have right to keep the
said property to offset the debt or have priority in satisfying his
claim out of proceeds from the auction, sale of the said property
pursuant to the provisions of this Law.

    The debtor or third party prescribed in the proceeding paragraph
shall be the mortgagor, the creditor shall be the mortgagee, the
property offered to guarantee shall be the gage.

    Article 34  The following properties may be mortgaged:

    1. the house and other land fixtures owned by the mortgagor;

    2. the machine, transportation means and other property owned by
the mortgagor;

    3. the state-owned right to the use of land, house and other land
fixtures which the mortgagor is enpost_titled to dispose of pursuant to the
law;

    4. the state-owned machine, transportation means and other
property which the mortgagor is enpost_titled to dispose of pursuant to the
law;

    5. the right to the use of land on the unreclaimed land such as
unreclaimed mountains, unreclaimed valleys, unclaimed hills or
unreclaimed beaches which is contracted for management by the
mortgagor in accordance with law and is agreed to mortgage by the
contractee; or

    6. other property which may be mortgaged in accordance with the
law.

    The mortgagor may mortgage the properties listed in the
proceeding paragraph all together.

    Article 35  The obligatory right guaranteed by the mortgagor shall
not exceed the value of the gage.

    After the property is mortgaged, the surplus part that the said
property is more than the obligatory right guaranteed, may be
mortgaged once more, but shall not exceed the surplus part.

    Article 36  If the house upon the state-owned land obtained
according to the law is to be mortgaged, the right to the use of the
state-owned land within the scope the house occupies shall be
mortgaged at the same time.

    If the right to the use of state-owned land obtained by way of
transfer according to the law, when mortgaged the house upon the said
state-owned land shall be mortgaged at the same time.

    The right to the use of land of enterprises of a township (town)
or village shall not be mortgaged separately. If the buildings of
enterprises of township (town) or village such as a plant is to be
mortgaged, the right to the use of the land within the scope it
occupies shall be mortgaged at the same time.

    Article 37  the following properties shall not be mortgaged:

    1. the ownership of land;

    2. the ownership of the lands owned by collectives such as
cultivated land, house sites, private plots of cropland and hilly land
shall not be mortgaged, except that prescribed in item 5 of Article
34, paragraph 3 of Article 36 of this Law;

    3. the facilities for education, the facilities for public health
and medicine and other facilities for social benefit of the
institutions or social units for purpose of public interest such as
schools, kindergartens or hospitals;

    4. the properties whose ownership or right to use is uncertain or
in dispute;

    5. the properties sealed up, distrained or regulated; or

    6. other properties which shall not be mortgaged pursuant to law.

    Section 2  Mortgage Contract and Gage Registration

    Article 38  The mortgagor and the mortgagee shall enter into a
mortgage contract in written form.

    Article 39  A mortgage contract shall contain the following
contents:

    1. the categories and amount of master obligatory right
guaranteed;

    2. the time limitation to perform the debt by the debtor;

    3. the name, quantity, quality, situation, address, ownership or
right to the use of the gage;

    4. the extent guaranteed by the mortgage; and

    5. other items the parties consider necessary to agree.

    If a mortgage contract has the contents prescribed in the
proceeding paragraph incomplete, it may be supplemented.

    Article 40  When entering into a mortgage contract, the mortgagor
and the mortgagee shall not agree that, when the mortgagee is not
satisfied at date of expiration of the time limitation for the debt
performance, the ownership of the gage is to be transferred to the
creditor.

    Article 41  Where the parties take the properties prescribed in
Article 42 of this Law to mortgage, he shall go through the gage
registration, the mortgage contract shall be effective as the date of
registration.

    Article 42  The departments handling the gage registration are as
follows:

    1. in case that the right to the use of land without fixtures upon
the land is to be mortgaged, it shall be the land administration
departments which upon verification issue certificates for the right
to the use of land;

    2. in case that the city real estates or the building of the
township (town) or village enterprises such as a plant is to be
mortgaged, it shall be the departments prescribed by the local
people’s governments at and above the county level;

    3. in case that the woods are to be mortgaged, it shall be the
forestry administration departments at and above the county level;

    4. in case that aircraft, vessels or vehicles are to be mortgaged,
it shall be the registration departments for transportation means; or

    5. in case that the equipment or other movables of a enterprise
are to be mortgaged, it shall be the administrations of industry and
commerce where the properties are located.

    Article 43  Where the party takes other properties to mortgage,
he may go through the gage registration on a voluntary basis, the
mortgage contract shall be effective as the date of registration.

    The party who has not handled the gage registration shall not be
opposed to a third party. If the party goes through the gage
registration, the registration department is to be the notary
department of the area where the mortgagor is located.

    Article 44  When the gage registration is to be handled, the
following documents or their copies shall be produced to the
registration department:

    1. the master contract and the mortgage contract; and

    2. the certificate of ownership of or right to the use of the
gage.

    Article 45  The information registered by the registration
department shall be allowed to inquire and read, copy by hand and
copy.

    Section 3  Effect of Mortgage

    Article 46  Within the guaranteed scope of a mortgage shall
be the master obligatory and its interest, contractual fine, damage
compensation and expense of realization of mortgage. If there is an
agreement otherwise in the mortgage contract, it shall be complied
with.

    Article 47  At the date of expiration of the debt performance
period, if the debtor has not performed the debt so that the gage has
been distrained by the people’s court, from the date of distraining
the mortgagee shall be enpost_titled to collect the natural fruits
separated from the gage and the legal fruits that the mortgagee may
collect on the gage. If the mortgagee has not informed the fact of the
distraining of the gage to the obligatory person who shall satisfy the
claim out of proceeds for the legal fruits, the effect of mortgage shall
not extend to the said fruits.

    The fruits of the proceeding paragraph shall eliminate in advance
the expense of collecting the fruits.

    Article 48  If the mortgagor wants to mortgage a property that
has been leased, he shall notify the leasee in writing, and the
original lease contract continues to be effective.

    Article 49  During the period of mortgage, if the mortgagor
assigns the gage registered, he shall inform the mortgagee and also
notify the assignee of the situation that the grant has been
mortgaged; if the mortgagor does not inform the mortgagee or notify
the assignee, the assigning behavior shall be invalid.

    If the value amount of the gage assigned is obviously lower than
its value, the mortgagee may demand the mortgagor to offer the
equivalent guarantee; if the mortgagor does not offer, the gage shall
not be assigned.

    The value amount from assigning the gage by the mortgagor shall
satisfy in advance the mortgagee for the claim out of the proceeds on
the obligatory right guaranteed or be deposited to the third party he
agreed with the mortgagee. The part exceeding the amount of the
obligatory right, shall be owned by the mortgagor, while the short
part shall be satisfied by the debtor.

    Article 50  The mortgage right shall not be separated from the
obligatory right so that it is assigned solely or as a guarantee of
other obligatory rights.

    Article 51  If the behavior of the mortgagor causes the value of
the gage to decrease, the mortgagee shall be enpost_titled to have right to
demand the mortgagor to stop his behavior. When the value of the gage
decreases, the mortgagee shall be enpost_titled to have right to demand the
mortgagor to restore the value of the gage, or offer a guarantee
equivalent to the value decreased.

    If the mortgagor has no fault for the decrease of the value of the
gage the mortgagee shall demand the mortgagee to be offered only
within the extent of compensation for the damage obtained by the
mortgagor. The part of the gage of which the value does not decrease,
shall still be the guarantee of the obligatory right.

    Article 52  The mortgage shall exist simultaneously with the
obligatory right it guarantees, where the obligatory right is extinct,
the mortgage shall be extinct as well.

    Section 4  Realization of Mortgage

    Article 53  At the date of expiration of the debt performance
period if the mortgagee has not been satisfied with the claim out of
proceeds, he may make an agreement with the mortgagor to keep the said
property to offset the gage or satisfies his claim out of proceeds
from the auction, sale of the said gage; if failing to make an
agreement, the mortgagor may file a case to the People’s Court.

    After the gage is set off, auctioned or sold, the part of the
value amount exceeding the amount of the obligatory right shall be
owned by the mortgagor, the short part shall be satisfied by the
debtor.

    Article 54  If there are two or more creditors who have a mortgage
on the same property, the value amount obtained from the auction, sale
of the gage shall be satisfied pursuant to the following provisions:

    1. where the mortgage contract is effective through registration,
it shall be satisfied in the registration sequence of the gage; if
equal in sequence, then it shall be satisfied according to the
proportion of the obligatory right; or

    2. where the mortgage contract is effective as the date of
signing, and the said gage has been registered, it shall be satisfied
according to the item 1 of this Article; if the gage has not
registered, it shall be satisfied in the sequence of the effective
date of the contracts, and if equal in sequence, it shall be satisfied
according to the proportion of the obligatory right. The registered
gage has priority to the unregistered gage.

    Article 55  After the signing of the city real estates mortgage
contract, the houses built lately upon the land shall not belong to
the gage. When the said mortgaged real estates is needed to be
auctioned, the lately built houses upon the land may be auctioned
together with the gage, but as for the amount from the auction of the
lately built houses, the mortgagee shall not be enpost_titled to have
priority in satisfying the claim out of proceeds.

    Where the right to the use of land of the unreclaimed land
contracted for management according to this Law is to be mortgaged, or
the right to the use of the land within the extent occupied by the
buildings of the township (town) or village enterprises such as a
plant is to be mortgaged, after the realization of mortgage, the
collective ownership and purpose of the land shall not be changed
without the legal procedure is gone through.

    Article 56  The value amount obtained from the auction of the
right to the use of the stated-owned land appropriated, after paying
the amount equivalent to the transfer fee of the right to the use of
land which shall be paid, the mortgagee shall be enpost_titled to have
right in priority for the claim out of proceeds.

    Article 57  The third party who offers guarantee of a mortgage on
behalf of the debtor, after the realization of the mortgage by the
mortgagee, shall be enpost_titled to have right to claim repayment from the
debtor.

    Article 58  The mortgage right extinguishe