Article 1 The detailed rules have been formulated pursuant to the “Tobacco Patent Sales Law of the People’s Republic of China” (hereinafter
referred to as “Tobacco Patent Sales Law”).

   Article 2 Tobacco patent sales refer to monopoly of the State of the administration of production, marketing and import and export of patent
tobacco products.

   Article 3 Patent cut tobacco refers to tobacco filaments, dust and granules processed with tobacco leaves, re-cured tobacco leaves and tobacco
sheets as raw materials.

   Article 4 Institution of functions and administrative system of departments in charge of tobacco patent sales of the State Council and various
provinces, autonomous regions and municipalities shall be done in accordance with the provisions of Article 4 of the Tobacco Patent
Sales Law. For cities and counties which do not have administrative departments in charge of tobacco patent sales, the departments
of the cities and counties in charge of tobacco patent sales shall take charge of such rules under dual leadership of the tobacco
patent sales administrative departments in charge at the next higher level and the people’s governments at the same level, with the
tobacco patent sales administrative departments in charge at the next higher level to assume the main leadership.

   Article 5 The State shall control over the tar contents of cigarettes and cigars and major additives to cigarettes and cigars. Tobacco products
manufacturers should not use harmful additives and colorants in violation of the ralated provisions by the State.

   Article 6 Application for tobacco patent sales licenses shall be required according to the provisions of the Tobacco Patent Sales Law and the
provisions of this set of rules for producing and handling wholesale and retail sale of tobacco products subject to patent sales
and for handling imports and exports of such products and for handling purchase and marketing of foreign tobacco products.

Tobacco Patent sales licenses are divided into:

(1) Tobacco Patent Production Enterprise License;

(2) Tobacco Patent Wholesale Enterprise License;

(3) Tobacco Patent Retail Sale Enterprise License;

(4) Special Tobacco Monopoly Business License;

   Article 7 The following requirements shall be met in obtaining Tobacco Patent Production Enterprise Licenses:

(1) To have adequate amount of funds for producing the patent tobacco products;

(2) To have the technology and equipment for producing the patene tobacco products;

(3) To adapt to the requirements of the State industrial policies for the tobacco industry; and

(4) To adapt to other requirements as provided for by the State Council department in charge of tobacco potent sales.

   Article 8 The following requirements shall be met in obtaining Tobacco Patant Wholesale Enterprise Licenses:

(1) To have adequate funds for wholesale of patent tobacco products;

(2) To have adaquate operational site and personnel;

(3) To conform to the requirements of the distribution of patent tobacco wholesale enterprises; and

(4) To conform to other requirements as provided for by the State Council department in charge of tobacco patent sales.

   Article 9 The following requirements shall be met in obtaining Tobacco Patent Retailsales Enterprise Licenses:

(1) To have adequate funds for retailsale of patent tobacco products;

(2) To have the fixed site for business operations;

(3) To conform to the requirements of the distribution of patent tobacco retailsales enterprises; and

(4) To conform to other requirements as provided for by the State Council department in charge of tobacco patent sales.

   Article 10 The following requirements should be met for obtaining Tobacco Patent Sales Enterprise Licenses:

(1) To have corresponding funds for handling tobacco and related products patent sales;

(2) To have a fixed site and adequate professional personnel for business operation;

(3) To conform with the rational distribution of tobacco patent retail sales enterprises; and

(4) To conform with other requirements as provided for by the State Council department in charge of tobacco patent sales.

   Article 11 Administrative department in charge of tobacco patent sales under the State Council shall be responsible for issuance of licenses
and administration of patent sales of tobacco products and transport of such products according to the Tobacco Patent Sales Law and
the provisions of this set of regulations.

   Article 12 In applying for a license for the production of tobacco products for patent sales, an application should first of all be filed with
the administrative departments in charge of tobacco patent sales of the province, autonomous region or municipality (hereinafter
referred to as provincial level), for an examination comments and submitted to the administrative department in charge of tobacco
patent sales under the State Council for approval and issuance of the license.

   Article 13 In applying for licenses for wholesale of tobacco patent products for trans-provincial, autonomous regional or municipal operations,
an application should be first of all filed with the provincial level administrative departments in charge of tobacco patent sales
for examination and comments and then submitted to the administrative department under the State Council in charge of tobacco patent
sales for approval and issuance of the license.

In applying for a license for wholesale of tobacco patent sales products within a province, autonomous region or municipality, an
application should first of all be filed with the administrative departments in charge of tobacco patent sales in its domicile for
examination comments and then submitted to the provincial level administrative departments in charge of tobacco patent sales for
approval and issuance of the license.

   Article 14 In applying for a license for patent retail sales of tobacco products, the provisions of the Tobacco Patent Sales Law shall apply.

   Article 15 In applying for a business license for special tobacco patent sales for import and export of tobacco patent sales products or sales
of foreign patent sales tobacco products, an application should first of all be filed with the provincial level administrative departments
in charge of tobacco patent sales for examination and comments and then submitted to the administrative department under the State
Council in charge of tobacco patent sales for approval and issuance of the license.

In applying for a special business license for sales of duty-free foreign tobacco patent sales products within the Customs control
areas, an application should first of all be filed with the administrative department in charge of tobacco patent sales in its domicile
for examination and comments and then submitted to the provincial level administrative department in charge of tobacco patent sales
for approval and issuance of the license.

   Article 16 Organs responsible for issuance of tobacco patent sales licenses should, regularly or irregularly check enterprises or individuals
that have obtained such licenses. If any case is found to have failed to meet the requirements of the Tobacco Patent Sales Law and
this set of regulations, the organs that issued the license shall order a temporary stop of the patent sales for carrying out a rectification
until all the requirements are met.

The specific procedures for control of tobacco patent sales licenses shall be worked out by the administrative department in charge
of tobacco patent sales under the State Council according to the provisions of this set of regulations.

   Article 17 Administrative department in charge of tobacco patent sales under the State Council shall, together with people’s governments of
related provinces, autonomous regions and municipalities, map out plans for tobacco plantation according to the requirements of rational
distribution and the State plans under the principle of improved strains, regionalization and standardization.

   Article 18 Tobacco leaves should be purchased in a unified way by tobacco companies or their entrusted units. Tobacco companies or their entrusted
units may, according to needs, open tobacco purchasing stations (points) to purchase tobacco in areas that have received plans for
purchasing tobacco issued by the State. The opening of such purchasing stations (points) should get the approval of provincial level
administrative departments in charge of tobacco patent sales. Without approval, no unit or individual is allowed to purchase tobacco
leaves.

   Article 19 Groups for grading of tobacco leaves should be erected by local administrative departments in charge of tobacco patent sales, together
with related departments at the same level and tobacco producers to coordinate appraisals of grades of tobacco leaves for purchase.

   Article 20 Plans for State reserves, exports and appropriation of tobacco leaves shall be issued by the planning department of the State Council.

   Article 21 Startups of tobacco product producers shall be applied by the provincial level tobacco patent sales administrative departments to
the State Council administrative department in charge of tobacco patent sales for approval and issuance of licenses and to the administrations
for industry and commerce for registration as tobacco patent sales production enterprises.

   Article 22 Producers of tobacco products should strictly operate according to the production plan issued by the State.

   Article 23 It is forbidden to use rotten tobacco leaves to make cigarettes, cigars or cut tobacco.

   Article 24 Registrations of trademarks should be undertaken for cigarettes, cigars and packed cut tobacco. In application for the registration,
document of approval for production issued by the State Council administrative Department in charge of tobacco patent sales should
be presented according to law.

   Article 25 Enterprises that have obtained licenses for patent wholesale of tobacco products should operate within the scope and areas specified
in the licenses.

Enterprises or individuals that have obtained licenses for patent retail sales of tobacco products should buy the products for sales
from the local tobacco patent wholesale enterprises and accept the supervision and control by the organs issuing the tobacco patent
sales licenses.

   Article 26 A unit or individual without a tobacco wholesale patent license to one time sales of over 50 cartons of cigarettes or cigars shall
be regarded as a wholesale business without license.

   Article 27 No unit or individual is allowed to sell illegally produced tobacco products.

   Article 28 Producers of tobacco products for patent sales or patent tobacco wholesalers must not provide tobacco products to units or individuals
that are unavailable with tobacco patent retail sales licenses.

   Article 29 Cigarettes and cigars to be sold within the territory of PRC should have Chinese words to indicate tar contents of the products and
the words “Cigarette smoking is harmful to health” on the surface of the packs.

   Article 30 State Council administrative department in charge of tobacco patent sales shall, if necessary, distribute cigarettes and cigars among
different provinces, autonomous regions and municipalities according to market demand.

   Article 31 It is forbidden to sell rotten or deteriorated tobacco products. Rotten or deteriorated tobacco products should be destroyed under
the guidance of administrative departments in charge of tobacco patent sales or related administrative departments.

   Article 32 Tobacco products with forged or phony trademarks discovered by related departments according to law shall be destroyed openly by
administrative departments in charge of tobacco patent sales according to the related regulations but not to be resold by any means.

   Article 33 The appraisals and testing of tobacco products with forged or phony trademarks shall be carried out by tobacco quality testing stations
designated by quality control and supervision department of the State Council or the people’s governments of provinces, autonomous
regions and municipalities.

   Article 34 Licenses for transporting patent sales tobacco products shall be approved and issued by administrative departments in charge of tobacco
patent sales at and above provincial level or their authorized organs. Procedures for administration of licenses for transport of
patent sales tobacco products shall be worked out by the State Council administrative department in charge of tobacco patent sales.

   Article 35 Trans-provincial, autonomous regional and municipal transportation of imported patent sales tobacco products, home-made special tobacco
machineries and cigarette cellulose, filter tips and imported cigarette paper cuts should be made by one’s own effort or on consignment
basis on the strength of licenses for transport of patent sales tobacco products signed and issued by the administrative department
of the State Council in charge of tobacco patent sales.

Trans-provincial, autonomous regional and municipal transportation of domestic patent sales tobacco products other than domestically
manufactured tobacco special machinery and cigarette cellulose, filter tips and imported cigarette paper cuts should be made by one’s
own effort or on consignment basis on the strength of licenses for transport of patent sales tobacco products signed and issued by
the administrative department of the State Council in charge of tobacco patent sales or by provincial level tobacco patent sales
administrative department.

Trans-city or county transportation of patent sales tobacco products within a province, autonomous region or municipality should be
made by one’s own effort or on consignment basis on the strength of licenses for transport of patent sales tobacco products signed
and issued by the provincial level administrative departments in charge of tobacco patent sales or by units entrusted by them.

The transportation of confiscated smuggled patent sales tobacco products should be made by one’s own effort or on consignment basis
on the strength of licenses for transport of patent sales tobacco products signed and issued by the administrative department of
the State Council in charge of tobacco patent sales.

   Article 36 It shall be considered as transportation of patent sales tobacco products without transport licenses in one of the following cases:

1. The amount and scope of patent sales tobacco products transported have gone beyond the limits as prescribed in the transport licenses;

2. Use of overdue, altered or copied patent sales tobacco products transport licenses;

3. Bearing no license for transport of patent sales tobacco and failure to present valid certificate certifying the purchase of patent
sales tobacco products in the locality; and

4. Other acts involving the transport of patent sales tobacco products without a transport license.

   Article 37 The transship of patent sales tobacco products which is put under the control by the Customs shall go through the transshipping formalities
according to the regulations of the Customs on transshipment.

   Article 38 Tobacco patent wholesale enterprises and tobacco products production enterprises should purchase cigarette paper, filter tips, cigarette
cellulose and special cigarette making machineries exclusively from enterprises with patent tobacco production licenses, special
patent tobacco businesses licenses. Enterprises producing cigarette paper, filter tips, cigarette cellulose and special cigarette
making machineries should not sell their products to units or individuals without a patent tobacco production license.

   Article 39 The procurement, sale and transfer of special cigarette making machineries should have prior approval of the administrative department
in charge of patent tobacco sales under the State Council.

The catalog of special cigarette making machineries shall be compiled by the administrative department in charge of patent tobacco
sales under the State Council.

   Article 40 No unit or individual is allowed to sell special cigarette making machineries, cigarette paper, filter tips and cigarette tip cellulose.

Obsolete and illegally assembled special cigarette making machineries, sub-standard cigarette paper, filter tips and cigarette cellulose
and their odds and ends should be put under the disposal of local administrative departments in charge of patent tobacco sales and
are not allowed to be sold by any means.

   Article 41 The establishment of patent tobacco production enterprises with foreign investment should get the prior consent from the administrative
department in charge of tobacco patent sales under the State Council as according to related regulations of the State.

   Article 42 Import of patent sales tobacco products can only be handled by enterprises with special patent tobacco business licenses. The plan
for such import should be examined and approved by the administrative department in charge of tobacco patent sales under the State
Council.

   Article 43 Tobacco products imported duty-free should be kept at bonded warehouses designated by the Customs and locked and controlled by local
administrative departments in charge of tobacco patent sales and the Customs houses designated by the administrative department in
charge of tobacco patent sales under the State Council. The Customs should certify each package of foreign tobacco products imported
duty-free according to the import plan which has been approved by the administrative department in charge of tobacco patent sales
under the State Council.

   Article 44 Duty-free cigarettes and cigars should only be put on retail sales inside the areas under the control of the Customs with special
signs prescribed by the administrative department in charge of tobacco patent sales under the State Council on the packs and cartons.

   Article 45 Cigarettes and cigars especially for export should bear the Chinese words of “For Export Only” on the packs and cartons.

   Article 46 Administrative departments in charge of tobacco patent sales should supervise over and check on the implementation of the Tobacco
Patent Sales Law and the provisions of this set of regulations, explore and punish cases that have been found violated the Tobacco
Patent Sales Law and the provisions of this set of regulations and, together with related departments of the State, check and punish
smuggling of tobacco patent sales products, sales of smuggled goods and fake or shoddy tobacco patent sales products.

   Article 47 The opening of tobacco patent sales markets should be examined and approved by the administrative department in charge of tobacco
patent sales under the State Council. Tobacco patent sales markets that have not been approved should be banned by the people’s governments
above the county level.

   Article 48 The administrative department in charge of tobacco patent sales under the State Council shall, if necessary, set up offices in major
areas according to the actual circumstances; provincial administrative departments in charge of tobacco patent sales shall, if necessary,
station personnel in tobacco patent production and business enterprises. The offices or personnel stationed shall carry out supervision
and checks on production and business activities within the scope authorized by the departments that have set up the offices or stationed
personnel.

   Article 49 In examining and punishing cases that have violated the Tobacco Patent Sales Law and the provisions of this set of regulations, administrative
departments in charge of tobacco patent sales may exercise the following powers and functions:

1. to inquire into parties, suspects and witnesses concerned;

2. to check the business sites of parties concerned and dispose of the patent sales tobacco products produced or managed illegally;
and

3. to refer to and copy contracts, invoices, accounts, bills, records, documents, business letters and other materials related to
the law- violating acts.

   Article 50 Administrative departments in charge of tobacco patent sales may on its own or together with related departments carry out check
and handle illegal transportation of patent sales tobacco products.

   Article 51 Patent sales tobacco products confiscated according to law by the people’s court or the patent administrative departments concerned
in charge of tobacco patent sales and patent sales tobacco products used as penalty funds, pecuniary money or tax payment should
be auctioned according to relevant regulations of the State and bidders should enter in the auction upon the strength of tobacco
patent wholesale licenses. Bidders for foreign tobacco products should have acquired a tobacco patent sales business license.

Auctioning enterprises established according to law shall verify the qualifications of bidders and accept supervision by administrative
departments concerned in charge of tobacco patent sales in their work of auctioning tobacco patent sales products.

   Article 52 In performing their duties, tobacco patent sales inspection personnel of administrative departments concerned in charge of tobacco
patent sales shall wear badges issued by the tobacco patent sales administrative department under the State Council and present inspection
certificates issued by provincial level tobacco patent sales administrative departments.

   Article 53 Units or individuals who have done a good work in reporting cases violating tobacco patent sales law shall be rewarded.

   Article 54 Punishments as defined in Article 30 of this set of regulations should be meted out as:

1. For purchasing tobacco leaves without authorization, a fine amounting to over 20% and less than 50% of the value of tobacco purchased
illegally shall be imposed and the tobacco leaves illegally purchased shall be purchased at State listed prices;

2. For cases of purchasing more than 1,000 kilograms of tobacco leaves without authorization, the tobacco leaves illegally purchased
together with all the illegal proceeds, shall be confiscated.

   Article 55 Punishments as defined in Article 31 of this set of regulations shall be meted out as:

1. For consigning or self-transportation of tobacco patent sales products without transport passes or the amount of tobacco patent
sales products carried has exceeded the amount prescribed in the transport passes, a fine amounting to over 20% and less than 50%
of the value of the products illegally transported and the tobacco patent sales products may be pruchased at State listed prices.

2. Tobacco patent sales products transported illegally and all the proceeds shall be confiscated in one of the following cases:

(1) The value of tobacco patent sales products illegally transported has exceeded RMB 50,000 or the amount of cigarettes has exceeded
100 parcels (one parcel includes 10,000 cigarettes);

(2) Those who have been punished at least twice by administrative departments in charge of tobacco patent sales;

(3) Resisting the inspection by the inspection personnel of administrative departments in charge of tobacco patent sales;

(4) Illegally transporting smuggled tobacco patent sales products;

(5) Transporting tobacco patent sales products manufactured by enterprises without tobacco patent sales production licenses;

(6) Illegal camouflaged transportation of tobacco patent sales products;

(7) Evading inspection by using special purpose transportation means to carry tobacco patent sales products; and

(8) Other illegal transportation acts and the cases are very serious.

3. For units or individuals who intentionally transport tobacco patent sales products without transport passes, their illegal proceeds
shall be confiscated and a fine amounting to over 10% and less than 20% of the value of the tobacco patent sales products transported
shall be imposed.

4. For cases of sending by post or carrying tobacco leaves and tobacco products from one place to another with the sending or carrying
amounts exceeding more than one time the limits set by the related department of the State Council, punishments shall be meted out
according to the provisions of Article 32 of this set of regulations.

   Article 56 Punishments as defined in Article 32 of this set of regulations shall be meted out as:

1. For enterprises producing tobacco products without patent tobacco production licenses, administrative departments in charge of
tobacco patent sales shall order them to shut down and confiscate all the illegal proceeds and impose a fine amounting to one time
and less than two times the value of the tobacco products produced and the tobacco products confiscated shall be destroyed openly.

2. For enterprises producing cigarette paper, filter tips, tobacco cellulose or special equipment for making tobacco without licenses,
administrative departments in charge of tobacco patent sales shall order them to shut down and confiscate all the illegal proceeds
and impose a fine amounting to one time and less than two times the value of the products produced and the products confiscated shall
be destroyed openly.

   Article 57 For cases of illegally handling wholesales of tobacco products without licenses as defined in Article 33 of this set of regulations,
administrative departments in charge of tobacco patent sales shall order them to shut down or stop the wholesale business, confiscate
all the illegal proceeds and impose a fine amounting to over 50% and less than one time the value of the tobacco products sold.

   Article 58 Punishments as defined in Article 32 of this set of regulations shall be meted out as:

1. For handling import and export business of tobacco patent sales products without licenses, administrative departments in charge
of tobacco patent sales shall order them to stop such business, confiscate all the illegal proceeds and impose a fine amounting to
over 50% and less than one time the value of the business handled.

2. For businesses handling the selling and buying of foreign tobacco products without special tobacco patent sales business licenses,
administrative departments in charge of tobacco patent sales shall order them to stop such business, confiscate all the illegal proceeds
and impose a fine amounting to 20%-50% of the value of the products handled illegally.

   Article 59 For licensed tobacco patent wholesale enterprises that have violated the provisions of the first paragraph of Article 25 of this
set of regulations by handling wholesales beyond the business and geographical scopes, administrative departments in charge of tobacco
patent sales shall order them to suspend their businesses, and confiscate all the illegal proceeds and impose a fine amounting to
10%- 20% of the value of the products handled.

   Article 60 For tobacco patent retail sale enterprises or individuals that have violated the provisions of the second paragraph of Article 25
of this set of regulations by failing to procure products from local tobacco patent wholesalers, administrative departments in charge
of tobacco patent sales shall confiscate all the illegal proceeds and impose a fine amounting to 5%-10% of the value of the products
procured.

   Article 61 For cases that handle retail sale of tobacco products without tobacco patent retail sales licenses, administration for industry and
commerce or administrative departments in charge of tobacco patent sales, according to the opinion of administration for industry
and commerce, shall order them to stop their retail sales businesses, confiscate all the illegal proceeds and impose a fine amounting
to 20%- 50% of the value of the products handled.

   Article 62 For cases of marketing illegally manufactured tobacco patent sales products in violation of Article 27, the first paragraph of Article
40 of this set of regulations, administrative departments in charge of tobacco patent sales shall order them to stop the marketing
operations, confiscate all the illegal proceeds and impose a fine amounting to 20%-50% of the value of the products marketed and
the tobacco patent sales products confiscated shall be destroyed openly.

   Article 63 For cases of handling trans-provincial, autonomous regional and municipal tobacco products wholesale business without obtaining tobacco
patent wholesale licenses in violation of this set of regulations, administrative department in charge of tobacco patent sales shall
impose a fine amounting to over 10% and less than 20% of the value of the total amount handled.

   Article 64 For cases that provide tobacco patent sales products to units or individuals without tobacco patent sales licenses in violation of
the provisions of Article 28 and the second paragraph of Article 38 of this set of regulations, administrative departments in charge
of tobacco patent sales shall confiscate all the illegal proceeds and impose a fine amounting to 20%-50% of the value of the products
sold.

   Article 65 For tobacco wholesale enterprises