Circular of the General Office of the State Council Concerning Some Matter on Severely Cracking Down on Illegal Issuance of Stocks
and Illegal Operation of Securities Business

Guo Ban Fa [2006] No.99

The people’s governments of each province, autonomous region and municipality directly under the Central Government, each ministry
and commission of and department directly under the State Council:

In recent years, illegal issuance of stocks and illegal operation of securities business (hereinafter referred to as illegal securities
activities) arise now and then in some regions of China, in one or two regions, this tide even trends to spread, which severely harms
social stability and financial security. With a view to implementing the related provisions of the laws concerning company and securities,
preserving the normal order of securities market and protecting the lawful rights and interests of the vast number of investors,
we hereby inform the following related matters on severely cracking down on illegal securities activities upon the consent of the
State Council:

1.

Improving the awareness, unifying the thoughts and controlling the spreading trend of illegal securities activities with a firm hand

Illegal securities activities possess such identities as hidden means, deep fraudulence, fast spreading, easy re-occurrence and so
on, in addition to which, they involve massive people with most investors as retirees, off-duty employees and other mass with trebles,
so it is prone to cause massive incident. At present, illegal securities activities are mainly conducted in the forms as follows:
firstly, drawing up such false information as that a company is under establishment domestically or overseas or that the issuance
of stocks has been approved by the related departments under the government in order to inveigle the general public to purchase the
so-called “original issue stock”; secondly, illegal intermediate organs, without approval of statutory authorities, illegally purchase/sell
the stocks of unlisted companies from/to the general public directly or upon agency in the name of investment consultant institution,
property right brokerage company or representative office of foreign-funded company or foreign investment company located in China;
lastly, lawbreakers defraud money and properties from the mass by luring them with large amount of return in the name of securities
investment.

Each local people’s government and related department of the state council shall further unify the thoughts, pay more attention to
and be sufficiently aware of the hazardness of illegal securities activities as well as enhance political responsibility. They shall
consummate the policies and regulations about cracking down on illegal securities activities and the mechanism of joint execution
of law , check and punish a batch of major and main cases, investigate the responsibilities of the relevant personnel in accordance
with law, establish and improve mechanism with a long-term effectiveness to prevent and crack down on illegal securities activities
so as to end the spreading trend of illegal securities activities radically.

2.

Clearly dividing the duty, intensifying cooperation and shaping a joint force of law execution to crack down on illegal securities
activities

For the purpose of intensifying the organization and direction, with China Securities Regulatory Commission as the leading and the
Ministry of Public Security, the State Administration for Industry and Commerce and China Banking Regulatory Commission as the assistants
as well as by inviting the Supreme People’s Court and the Supreme People’s Procuratorate to take part in, , a coordinating group
for cracking down on illegal securities activities shall be set up to take charge of organizing and coordinating work on cracking
down on illegal securities activities, interpreting the related policies as well as determining the nature. The office of the coordinating
group shall be set in China Securities Regulatory Commission, which shall organize special organs and right-hand personnel with clearly
divided duties and well communication, together with the related departments and the provincial people’s governments, set up a working
mechanism that may provide fast and effective response and close cooperation.

The people’s governments of each province, autonomous region, municipality directly under the Central Government and the city specifically
designated in the state plan shall take charge of investigating, punishing illegal securities activities and handling the follow-up
work thereof according to the principle of territory. Once any illegal securities activity is determined by China Securities Regulatory
Commission or any dispatched office thereof, the provincial people’s government shall take charge of investigating, punishing such
illegal securities activity and handling the follow-up work thereof within its jurisdiction. Where several provinces (regions, cities)
are involved, the provincial people’s government at the locality of the registration of the company involved shall act as the leading
role, and the related provinces (regions, cities) shall actively assist and coordinate. If a crime is suspected, the case shall be
transferred to the public security organ in a timely manner, which shall record the case and investigate the criminal liabilities
in accordance with law. In case no crime is constituted, the securities regulatory department and the administrative department of
industry and commerce shall impose administrative punishment in accordance with law and their respective duties.

The local people’s governments of each level shall pay more attention, make overall arrangement, deploy in a comprehensive way, set
up a pre-warning mechanism that combines the tip-offs by the mass, media surveillance and daily surveillance and administration with
timely investigation and punishment to prevent illegal securities activities, and set down a preplan for disposing risk. With respect
to regions where such cases arise frequently in recent years, the local people’s governments concerned shall conduct the investigation,
punishment and banning work immediately after a case arises, decisively handle, investigate and punish a batch of typical cases in
a centralized way and report them publicly so as to awe the criminals, educate the mass and preserve social stability.

3.

Defining policy limits and monitoring and administering in accordance with law

(1)

Severely prohibiting the issuance of stocks to the public without authorization. Public issuance, that is an act of issuing stocks
to unspecified objects or that the accumulated number of the shareholders is more than 200 in terms of issuing stocks to specified
objects, shall be reported to China Securities Regulatory Commission for examination and approval in advance, and it is illegal to
issue stocks publicly without approval of China Securities Regulatory Commission.

(2)

Severely forbidding the public issuance of stocks in any disguised form. It belongs to non-public issuance of stocks that the accumulated
number of the shareholders is not more than 200 after issuing stocks to specified objects. The stocks of non-public issuance and
stock equity thereof may not be issued and transferred in such public ways either direct disguised as advertisement, public announcement,
broadcasting, telephone, fax, letter, recommendation fair, explanation meeting, network, short message, public inducement and so
on. It is strictly prohibited that any corporate shareholder transfers stocks to the social public in a public way, either by themselves
or by entrusting other persons. With regard to transferring stocks to specified objects, the accumulated number of the shareholders
after the transfer may not exceed 200 if it is not reported to China Securities Regulatory Commission for examination and approval.

(3)

Strictly prohibiting the illegal operation of securities business. Such securities businesses as stock underwriting, brokering (buying
and selling upon agency), securities investment consultation and so on shall be operated by the securities institutions set up upon
the approval of China Securities Regulatory Commission in accordance with law, and no other institution or individual may operate
any securities business without approval of China Securities Regulatory Commission.

Any entity or individual that violates any of the three provisions mentioned above shall be clamped down firmly, and the legal responsibilities
shall be investigated in accordance with law.

China Securities Regulatory Commission shall, according to the provisions of the laws on company and securities, study and set down
the provisions on the administration of the limited liability companies that publicly issue stocks but are not listed in securities
exchanges (hereinafter referred to as unlisted public companies), which shall clarify the conditions for the establishment and issuance
of stocks of unlisted public companies, procedure of examination and approval for issuance and rules for registration, custody and
transfer, etc, so as to integrate the supervision and administration of unlisted public companies into the track of legal system.

4.

Intensifying the efforts in guiding public opinions and the education toward investors

In order to improve the consciousness and capability of the vast number of investors in identifying and preventing the risks of illegal
securities activities and prevent the occurrence of such activities as well as nip them in the bud, China Securities Regulatory Commission,
the Ministry of Public Security and other related departments shall lead the local people’s governments of each level to disseminate
the forms, characteristics, typical cases and severe harms of illegal securities activities in an all-round and multi-angle way by
comprehensively utilizing such media as newspaper, television, broadcast, internet, etc.

The General Office of the State Council

December 12, 2006