THE JUDICIAL INTERPRETATION OF THE SUPREME PEOPLE’S COURT ON SOME ISSUES REGARDING THE APPLICATION OF THE GUARANTEE LAW OF THE PEOPLE’S REPUBLIC OF CHINA

the Supreme People’s Court

Announcement of the Supreme People’s Court of the People’s Republic of China

Fa Shi [2000] No. 44

The Judicial Interpretation of the Supreme People’s Court on Some Issues Regarding the Application of the Guarantee Law of the People’s
Republic of China, which has been adopted by the Judicial Committee of the Supreme People’s Court at its No.1133 Conference on September
29, 2000, is hereby promulgated and shall come into force as of December 13, 2000.

the Supreme People’s Court

December 8, 2000

The Judicial Interpretation of the Supreme People’s Court on Some Issues Regarding the Application of the Guarantee Law of the People’s
Republic of China

(Adopted by the Judicial Committee of the Supreme People’s Court at its No.1133 Conference on September 29, 2000)

For the purpose of ensuring the correct application of the Guarantee Law of the People’s Republic of China (hereinafter referred to
as “the Guarantee Law”), based on the judicial practice and experience, the following interpretations have been made concerning the
application of laws while the people’s courts are handling the guarantee disputes .

Part I

Interpretation of General Principles

Article 1

A guarantee created by the parties for the creditor’s rights arising from civil relations may be considered valid if it conforms to
the forms stipulated in the Guarantee law and does not violate any compulsory provision in laws and regulations.

Article 2

Counter-guarantee provider may be the debtor or some other parties.

The form of counter-guarantee may be mortgage or pledge offered by the debtor, or guarantee, mortgage or pledge offered by some other
parties.

Article 3

Where any state organ or any institution, social organization for the public good violates laws to provide guarantee, the guarantee
contract shall be invalid. And it shall be punished pursuant to Article 5 (2) of the Guarantee Law if any loss is caused to the
creditors.

Article 4

Where any director or manager violates Article 60 of the Company Law of the People’s Republic of China to provide guarantee for the
debt of the company’s shareholders or other persons, the guarantee contract shall be invalid. The debtor and the guarantee provider
shall bear joint compensation liability for creditor’s loss unless the creditor knows or should know about the fact.

Article 5

Where a guarantee is created with the property that is prohibited by laws and regulations from circulating, or is not transferable,
the guarantee contract shall be invalid.

Where a guarantee is created with the property restricted by laws and regulations from circulating, the people’s court shall dispose
of the property to realize the creditor’s rights in accordance with relevant laws and regulations.

Article 6

The foreign guarantee contract shall be invalid under any of the following circumstances:

1. a foreign guarantee is provided without the approval or registration by relevant competent departments;

2. the guarantee is provided to domestic creditors for oversea organs without approval or registration by relevant competent departments;

3. the guarantee is offered to secure the registered capital of a foreign-invested enterprise or the foreign party’s external debt
of its investment in a foreign-invested enterprise;

4. a foreign exchange guarantee is provided by a financial organ whose business scope does not include foreign exchange guarantees,
or by a non-financial enterprise legal person without foreign exchange income;

5. the guarantee provider will not bear any responsibility if the principal contract is altered or the creditor transfers the right
of a foreign guarantee contract without consent of the guarantee provider or approval of relevant competent departments, unless it
is otherwise provided by in laws and regulations.

Article 7

The guarantee provider and the debtor shall assume joint compensation liability for the creditor’s loss on the condition that the
principal contract is valid while the guarantee contract is invalid and the creditor is not in fault. If the creditor and the guarantee
provider are both in fault, the civil liability that the guarantee provider should assume shall not exceed half of that that the
debtor can’t pay off.

Article 8

If the guarantee contract is invalid due to the invalidity of the principal contract and the guarantee provider is not in fault, he
shall not assume any civil obligation. If the guarantee provider is in fault, he shall bear not more than one third of the obligation
that can’t be fulfilled by the debtor.

Article 9

The guarantee provider may have recourse against the debtor after assuming compensation liability to the creditor in the case of invalid
guarantee contract.

The guarantee provider may also require the counter-guarantee provider in fault to bear the liability within the compensation scope.

The guarantee provider may bring a lawsuit against the debtor or the counter-guarantee provider on the basis of the fact that the
compensation has been made.

Article 10

After termination of the principal contract, the guarantee provider shall still be liable to the debtor for the latter’s civil obligation
unless it is otherwise stipulated by the guarantee contract.

Article 11

The act of concluding a guarantee contract by the legal representative or person in charge of a judicial person or other organizations
beyond their purview of authorization shall be valid, except when the counter party knows or should know about such fact.

Article 12

The period of guarantee agreed upon by the parties or required by registration departments shall not have legal binding force on the
continuity of the guarantee.

Within two years after the limitation of action for a creditor’s secured right expires, the people’s court shall support the creditor’s
exercise of his guarantee right.

Part II

Interpretation of Guarantee

Article 13

Where a guarantee contract reads that the guarantee provider shall fulfill the non-monetary obligation and the guarantee provider
fails to do so actually, he shall compensate the creditor for the consequent loss.

Article 14

Where any legal person, any other organization or natural person without complete solvency concludes any guarantee contract as a guarantee
provider, and then pleads to be exempted from guarantee liability for their lack of solvency, such pleadings shall not be supported
by the people’s court.

Article 15

Other organizations provided in Article 7 of Guarantee law mainly include:

1. independently-invested and partnership enterprises, which have legally registered and drawn business licenses;

2. jointly-operated enterprises with legal registration and business licenses;

3. Sino-foreign cooperative joint ventures with legal registration and business licenses;

4. social organizations approved and registered by civil administration departments;

5. enterprises owned by townships, subdistricts and villages with legal registration and business licenses;

Article 16

The guarantee contracts concluded by operating institutions or social organizations as the guarantee providers shall be deemed as
valid, if there is no reason for invalidity of the contract.

Article 17

Where the guarantee is provided for by a branch of an enterprise legal person without authorization in written form by such legal
person, the guarantee contract shall be invalid. And the consequent loss of the creditor shall be compensated for according to Article
5 (2) of the Guarantee Law.

When providing guarantee with written authorization by the enterprise legal person, if the scope of authorization is not clear, the
branch of the enterprise legal person shall assume the whole liabilities for the debt agreed upon in the guarantee contract.

If the guarantee liability exceeds the amount of the property of the branch, the enterprise legal person shall assume the civil obligation.

Where the guarantee provided by the branch becomes invalid and the branch shall assume the compensation liability, the compensation
shall be made with the property under the administration of the branch. If the enterprise legal person is in fault, Article 29 of
the Guarantee Law shall apply.

Article 18

If the guarantee is offered by function departments of an enterprise legal person, the guarantee contract shall be invalid. The creditor
shall bear consequent loss if he knows or should know that the guarantee provider is a functional department of an enterprise legal
person.

If the creditor is not aware that the guarantee provider is a functional department of an enterprise legal person, the consequent
loss may be dealt with according to Article 5 (2) and Article 29 of the Guarantee Law.

Article 19

Where two or more guarantee providers secure the same debt simultaneously or respectively but the guarantee providers and the creditor
have not agreed on the guarantee shares, such guarantee shall be deemed as joint guarantee.

Where the joint guarantee providers antagonize the creditor with their internal agreement of guarantee shares, such defense shall
not be supported by the people’s court.

Article 20

If the debtor of a joint guarantee fails to fulfill his liability upon the termination of term for performance as written in the principal
contract, the creditor may require the debtor to fulfill his liability or require any of the guarantee providers to bear the entire
guarantee responsibility.

After undertaking the guarantee responsibility, the joint guarantee providers may divide the portion that is unrecoverable from the
debtor according to the proportions agreed upon internally. If no such proportions are agreed upon, this portion shall be divided
equally.

Article 21

The joint guarantee providers by shares shall be enpost_titled to claim repayment from the debtor within the purview of responsibly guarantee
after fulfilling their own shares of guarantee liabilities as agreed upon in the guarantee contract.

Article 22

Where the creditor accepts, without objection, a written guarantee that is unilaterally provided by a third party, the guarantee contract
shall be regarded as valid.

Where the guarantee provider signs or stamps on the principal contract without guarantee items in it as a guarantee provider, the
guarantee contract shall be regarded as valid.

Article 23

After confirming the uncertain creditor’s rights in a contract of a guarantee up to a maximum amount, the guarantee provider shall
assume responsibility within the maximum amount for the continuous obligations arising in a specific period.

Article 24

Where the general guarantee provider offers authentic information to the creditor concerning the debtor’s property that is eligible
for execution at the expiration of term for obligation performance in a principal contract, but the creditor gives up or neglects
the right and causes the failure of execution on this property, the guarantee provider may require the court to exempt him from guarantee
liability within the actual value scope of the above property.

Article 25

The major difficulties for the creditor to require the debtor to perform the liabilities stipulated in Section A of Article 17 (3)
include: unknown whereabouts, emigration of the debtor or no property of the debtor to be executed.

Article 26

Where the third party guarantees for the creditor to supervise the special purpose of a special fund, he will be free from liabilities
after performance of the above obligation. If the third party defaults and results in capital loss, he shall bear supplementary compensation
responsibility for the lost capital.

Article 27

Where the guarantee provider assures the debtor’s registered capital and the debtor’s actual investment does not accord with the registered
capital, or the debtor withdraws and transfers the registered capital, the guarantee provider shall assume the joint guarantee liability
within the scope of the insufficient capital or transferred capital.

Article 28

When the creditor lawfully transfers his principal rights of a creditor to a third party during the period of guarantee, the guarantee
rights of a creditor shall be transferred simultaneously and the guarantee provider shall fulfill his guarantee liability for the
transferee in the original scope of the guarantee. The guarantee provider shall be exempted from guarantee responsibilities if it
is agreed by the guarantee provider and the creditor that the guarantee is provided only to specific creditor or the credit is not
transferable.

Article 29

Where the creditor allows the debtor to transfer part of his debt without written consent of the guarantee provider during the period
of guarantee, the guarantee provider will not bear any liability for that transferred part of the debt, while he is still responsible
for the remaining part of the debt.

Article 30

Where during the term of guarantee, the creditor and the debtor alter the quantity, price, kind of currency, interest rate and etc.
in the principal contract without consent of the guarantee provider, and reduces the debtor’s obligation, the guarantee provider
shall still bear the guarantee liability in the altered contract; if the alteration increases the debtor’s obligation, the guarantee
provider will not be liable for the increased part.

If the creditor and debtor alter the performance duration of the principal contract without written consent of the guarantee provider,
the guarantee duration shall remain unchanged or shall be the statutory duration.

The guarantee provider shall still bear the guarantee liability if the creditor and debtor agree to alter content of principal contract
but have not performed accordingly.

Article 31

The term of guarantee shall not be suspended, discontinued or extended under any circumstances.

Article 32

The guarantee term stipulated in a guarantee contract, which is earlier than or the same as the performance term of the principal
debt, shall be deemed as not stipulated. The guarantee term shall be six months as of the expiration date of the term for performance
of the principal obligation.

If It will be considered as an unclear provision if the guarantee contract stipulates that the guarantee provider shall bear the guarantee
liability until the principal amount and interest for the principal debt have been paid. The guarantee term shall be two years as
of the expiration date of the term for performance of the principal obligation.

Article 33

Where there is no stipulation or no clear stipulation in the principal contract concerning the performance term of the principal debt,
the term of guarantee shall be calculated as of the expiration date of the grace period for the debtor to fulfill his obligation.

Article 34

Where the creditor of a general guarantee lodges a complaint or applies for arbitration against the debtor before the expiration of
the guarantee term, the limitation of action for the guarantee contract shall be calculated from the effective date of verdict or
arbitration award.

When the creditor of a joint liability guarantee requires the guarantee provider to assume liability before the expiration date of
the guarantee term, the limitation of action for the guarantee contract shall be calculated from the date of the creditor’s requirement.

Article 35

Where the guarantee provider assumes guarantee liability or provides guarantee for the debt that has exceeded the limitation of action,
and makes deraignment on the basis that such liability has exceeded the limitation of action, the people’s court shall not support
him.

Article 36

In general guarantees, the limitation of action for guarantee debts will intermit when that of principal debts does. In joint liability
guarantees, the limitation of action for guarantee debts will not intermit when that of the principal debts does.

In both general and joint liability guarantees, the limitation of action for guarantee debts will pause when that of the principal
debts does.

Article 37

Where there is no stipulation or no clear stipulation concerning the guarantee term in the contract of guarantee up to a maximum amount,
and the term for the guarantee provider to pay debts is written in the contract, the guarantee term shall be six months from the
expiration date of the term for the guarantee provider to pay the debts. If the term for payment of debts is not stipulated in the
contract, the guarantee term shall be six months from the termination of the guarantee up to the maximum amount, or six months from
the date of the creditor’s receiving of the guarantee provider’s written notice on terminating the guarantee contract.

Article 38

Where the same right of a creditor are assured by both a guarantee and a property guarantee of a third party, the creditor may require
the guarantee provider or such third party to perform obligation. Where there is no stipulation or no clear stipulation by the parties
concerning the scope of guarantee or property guarantee, the guarantee provider who has fulfilled the liability may have recourse
against the debtor or have the right to require the other guarantee providers to answer for their shares.

Where the same right of a creditor is assured by both a guarantee and property guarantee, and the guarantee contract of property is
proved invalid or rescinded, or the property is lost due to force majeure and no substitute is available, the guarantee provider
shall still assume liability as stipulated by contract or by law.

Where the creditor fails to exercise the property guarantee after expiration of the performance term for principal contract, which
thus results in depreciation, damage or loss of the guarantee property, the creditor shall be deemed to give up part or entire of
the property guarantee . The guarantee provider will be mitigated or exempted from the guarantee liability for the rights are given
up by such creditor.

Article 39

Where the parties of the principal contract agree to repay an old loan with a new loan, the guarantee provider will not bear civil
liability except when he knows or should know about this.

The above provision shall not apply where the same guarantee provider secures these two loans.

Article 40

Where the debtor of principal contract makes the guarantee provider to provide guarantee contrary to his will by means of fraud, intimidation
or the like, and the creditor knows or should know about such fact, Article 30 of Guarantee Law shall apply.

Article 41

Where the debtor and the guarantee provider concludes principal and guarantee contracts by jointly cheating the creditor, the creditor
may request the people’s court to remove such contracts. The guarantee provider and debtor shall bear joint liability for the creditor’s
consequent loss.

Article 42

Where the people’s court decides that the guarantee provider shall assume guarantee liability or compensation liability, it shall
specify in the verdict that the guarantee provider is enpost_titled to have the rights in Article 31 of the Guarantee Law. If the right
of recourse of the guarantee provider is not clearly defined in the verdict, the guarantee provider has to bring another lawsuit
on the basis of his compensation.

The limitation of action for the guarantee provider to recover from the debtor shall be calculated from the date when the guarantee
provider assumes liability to the creditor.

Article 43

Where the guarantee provider assumes liability independently and his actual payment exceeds the principal obligation, the guarantee
provider may only have recourse against the debtor within the scope of the principal obligation.

Article 44

When the court accepts the bankruptcy application of a debtor during the term of guarantee, the creditor may either declare his claim
to the people’s court or make a claim to the guarantee provider .

The guarantee provider shall still assume guarantee liability for the portion unpaid in the bankruptcy procedure after the creditor
has declared his claim. The creditor shall require the guarantee provider to perform his obligations within six months from the termination
of the bankruptcy procedure.

Article 45

Where the creditor knows or should know about the debtor’s bankruptcy but fails to declare a claim or notify the guarantee provider,
which thus causes the guarantee provider’s inability to claim recourse in advance, the guarantee provider will be exempted from obligation
within the scope (for the amount) that may be paid in the bankruptcy distribution.

Article 46

Where the creditor has not declared his creditor’s rights after the court accepts the debtor’s bankruptcy case, the joint guarantee
providers shall declare their creditor’s rights as one body for recourse in advance.

Part III

Interpretation of Mortgage

Article 47

Where the parties have registered the mortgaged property of a house or other buildings that have been approved according to law but
not built, or still under construction, such mortgage may be considered valid by the people’s court.

Article 48

Mortgage on buildings, which is determined by legal procedure as violating laws or regulations, shall be invalid.

Article 49

Mortgage on a property without ownership certificate may be considered valid if the ownership certificate is available or the register
procedure is handled before termination of court debate in the first instance.

The parties that fail to register the mortgaged property may not counterwork against a third party.

Article 50

Where a mortgage is made on all the properties stipulated in Article 34 (1) of the Guarantee Law, the scope of the mortgaged property
shall be determined by the registration. The value of the mortgaged property shall be made certain upon the realization of hypothec.

Article 51

Where the guaranteed creditor’s rights exceed the value of the mortgaged property, there will not be priority of payment for the exceeding
portion.

Article 52

Where the parties make mortgages on crops and the usufruct of the undetached land simultaneously, the mortgage on the usufruct of
land shall be invalid.

Article 53

Where institutions and social organizations for the public good such as schools, kindergartens, hospitals, etc., for their own debts,
make mortgages on properties other than the educational, medical and other facilities for public good, such mortgage may be considered
valid by the court.

Article 54

Mortgage made by a co-owner by shares on his own share of common property shall be valid. Where the common owner makes a mortgage
on the jointly owned property without consent of other owners, such mortgage shall be invalid. Where the other common owners know
or should know about such mortgage and do not object it, such act will be deemed as consent and the mortgage shall be valid.

Article 55

The procedures of property preservation and execution such as sealing up, detaining, etc. taken to the mortgaged property shall not
influence the effect of the mortgage.

Article 56

Where there are no stipulations or no clear stipulations in mortgage contract concerning the category of the main creditor’s rights
guaranteed and the mortgaged property, and can not be supplemented or determined by the principal contract and mortgage contract,
the mortgage shall be deemed as not created.

Where after concluding the mortgage contract that will take effect after registration stipulated by law, the mortgagor refuses to
go through such procedure according to the principle of good faith, the mortgagor shall compensate the creditor for consequent loss.

Article 57

Where the parties stipulate in mortgage contract that the ownership of mortgaged property will be transferred to the creditor if the
creditor has not received full payment upon the expiration date of performance, such provision shall be invalid and shall not have
effect on other provisions of the contract.

Where a mortgagee has not received full payment at the expiration of the term for performance of obligations, he may negotiate with
the mortgagor to obtain the mortgaged property by converting its value. If the interests of later mortgagees in sequence or other
creditors are damaged thereof, the people’s court may adopt stipulations of Articles 74 and 75 in Contract Law.

Article 58

Where the parties register the mortgaged property at different registration departments in the same day, the order shall be deemed
as the same.

Where the continuous registrations are made due to the reasons by the registration department, the first day to register the mortgaged
property shall be seen as the registration date of mortgage and shall be the basis to determine the order of hypothec.

Article 59

Where the parties can not register the mortgaged property due to the reasons by the registration department and the mortgagor provides
the right certificate to the creditor, the creditor shall have priority right of payment for the property. However, without registering
the mortgaged property, the parties cannot counterwork against a third party.

Article 60

Where a mortgage is made on real property listed in Article 42 (2) of Guarantee Law, and there are no stipulations by governments
at county level or above concerning registration departments, if the parities register the mortgage at administration departments
of land or real estate, the people’s court may confirm effectiveness of such registration.

Article 61

Where the content of the mortgage registration is inconsistent with that of the mortgage contract, the former shall prevail.

Article 62

Where the mortgaged property is owned by a third party due to attaching, mixing or processing, the mortgage shall affect the compensation;
where the mortgagor becomes the owner of the attachment, mixture or processed articles, the mortgage will affect such attachment,
mixture or processed articles; where a third party jointly owns the attachment, mixture or processed articles with the owner of mortgaged
property, the mortgage will affect the share enjoyed by the mortgagor.

Article 63

Where a property is accessory of the mortgaged property prior to the mortgage enactment, the mortgage shall have effect on such accessory.
Where the mortgaged property and its accessory are independently owned by two or more persons, the mortgage shall not have effect
on the accessory.

Article 64

Where a mortgaged property is detained by a people’s court due to the debtor’s failure to perform his obligation at the expiration
of the term for such performance, as of the date of detaining, the natural and statutory fruits of the mortgaged property obtained
by the mortgagee shall be paid in the following order:

1. expenses for obtaining fruits;

2. interest for principal creditor’s rights;

3. principal creditor’s rights.

Article 65

Where the mortgagor makes mortgage on a leased property, after realization of the hypothec, the lease contract shall still be binding
on the consignee of such property within the validity period of the lease contract.

Article 66

Where the mortgagor leases a mortgaged property, the leasing contract will not be binding on the consignee after realization of the
hypothec.

Where when leasing the mortgaged property, the mortgagor fails to notify the leasee in written form about the fact, the mortgagor
shall compensate the leasee’s loss arising thereof; if notified by the mortgagor in written form, the leasee shall bear the loss
individually if any damage arises thereof.

Article 67

During the duration of hypothec, if the mortgagor transfers the mortgaged property without notifying the mortgagee or the consignee,
the mortgagee can still exercise his hypothec on condition that the mortgaged property has been registered; the consignee who has
obtained the ownership of the property may pay all the debts in the debtor’s place to extinguish the hypothec. After payment, the
consignee is enpost_titled to have recourse against the mortgagor.

If the mortgaged property has not been registered, the mortgagee is not enpost_titled to counterwork against the consignee. Any consequent
loss of the mortgagee shall be assumed by the mortgagor.

Article 68

The hypothec shall not be influenced if the mortgaged property is inherited or donated.

Article 69

Where one creditor has several general creditors and at the time of payment for obligation the debtor maliciously colludes with one
of the creditors to mortgage all or part of his property to the creditor, which results in the loss of capability of the creditor
to fulfill other debts and the damage to the legitimate rights and interests of other creditors, the injured creditors may request
the people’s court to withdraw such mortgage.

Article 70

When the act of a mortgagor may depreciate a mortgaged property, and the mortgagor refuses to restore the original condition or provide
guarantee, the mortgagee may require the debtor to perform his liability or require to exercise the hypothec in advance.

Article 71

Prior to full payment of the principal creditor’s rights, the mortgagee may exercise his hypothec on the whole of the mortgaged property.

When the mortgaged property is divided or partially transferred, the mortgagee may exercise his hypothec on the divided or transferred
mortgaged property.

Article 72

If the principal creditor’s rights are divided or partially transferred, every creditor may exercise his share of hypothec.

If the principal debt is divided or partially transferred, the mortgagor still can guarantee the obligation of several debtors s with
his mortgaged property. However, if the mortgage is provided by a third party and the creditor allows the debtor to transfer the
debt without written consent of the mortgagor, the mortgagor will not be liable for such portion of the obligation.

Article 73

Where the prices from converting into money, auctioning or selling of the mortgaged property are lower than the stipulated value when
the hypothec is created, payment shall be made according to the actual value of the proceeds. The debtor shall answer for the shortfall.

Article 74

When there is no stipulation of the parties on payment, the prices from converting into money, auctioning and sell

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