Order of China Banking Regulatory Commission
 
Following the approval of the State Council, the Administrative Rules Governing the Equity Investment in Chinese Financial Institutions by Overseas Financial Institutions is hereby promulgated by China Banking Regulatory Commission.
 
Chairman Liu Mingkang
 
December 8, 2003
 
Administrative Rules Governing the Equity Investment in Chinese Financial Institutions by Overseas Financial Institutions
 
Article 1 The Administrative Rules Governing the Equity Investment in Chinese Financial Institutions by Overseas Financial Institutions (hereinafter referred to as the Rules) is formulated for the purpose of regulating the activities in respect to the equity investment by overseas financial institutions in Chinese financial institutions, thereby optimizing the capital structure of Chinese financial institutions.
 
Article 2 The Rules is applicable to the equity investment by overseas financial institutions in a legally incorporated Chinese financial institution. The term "overseas financial institutions" referred to in the Rules shall include international financial institutions and foreign financial institutions, whereby the international financial institutions shall refer to the World Bank and its affiliated entities, other inter-governmental financial development institutions, and other international financial institutions recognized by China Banking Regulatory Commission (hereinafter referred to as the CBRC); the foreign financial institutions shall refer to the financial holding companies, commercial banks, securities firms, insurance companies, fund investment companies and other foreign financial institutions recognized by the CBRC that are incorporated in foreign countries.
The term "Chinese financial institutions" referred to in the Rules shall mean the Chinese commercial banks, urban and rural credit co-operatives, trust and investment companies, financial leasing companies, finance companies affiliated to enterprises and other Chinese financial institutions chartered by the CBRC that are legally incorporated within the territory of the People's Republic of China.
The term "equity investment proportion" referred to in the Rules is defined as the capital contribution or equity shares of a foreign financial institution as a percentage of the aggregate paid-up capital or the total equity of a Chinese financial institution.
 
Article 3 The CBRC shall be in the position of regulating and supervising the activities in respect to the equity investment in Chinese financial institutions by overseas financial institutions.
 
Article 4 A prior approval from the CBRC shall be obtained for the equity investment in Chinese financial institutions by overseas financial institutions.
 
Article 5 The equity investment in Chinese financial institutions by overseas financial institutions shall be carried out in good faith and with the long-term investment as the objective.
 
Article 6 The equity investment in Chinese financial institutions by overseas financial institutions shall be made in cash.
 
Article 7 An overseas financial institution engaging in equity investment in a Chinese financial institution shall meet the following requirements:

(1) Its total assets at the end of the previous year shall be in principle no less than US$10 billion if investing in a Chinese commercial bank; no less than US$1 billion if investing in a Chinese urban or rural credit co-operative; no less than US$1 billion if investing in a Chinese non-bank financial institution;

(2) Its long-term credit rating for the last two consecutive years assigned by the international rating agencies recognized by the CBRC shall be favorable;

(3) It shall remain profitable for the last two consecutive fiscal years;

(4) Where the overseas financial institution is a commercial bank, its capital adequacy ratio shall be no lower than 8 percent; where it is a non-bank financial institution, the ratio of its total capital to its total risk-weighted assets shall be no less than 10 percent;

(5) It shall have in place sound internal controls;

(6) Its home country (or region) shall have in place sound framework and systems for financial regulation and supervision;

(7) Its home country (or region) shall have a favorable economic environment; and

(8) It shall satisfy other prudential requirements set out by the CBRC.

The CBRC shall have the power to make adjustment to the qualification requirements of the overseas financial institution to reflect the changes in the risk profile of the financial sector and supervisory needs.
 
Article 8 The equity investment proportion of a single overseas financial institution in a Chinese financial institution shall not exceed 20 percent.
 
Article 9 Where the combined equity investment proportion of all overseas financial institutions in a non-listed Chinese financial institution is equal to or exceeds 25 percent, the non-listed Chinese financial institution shall be treated as a foreign-funded financial institution by the regulatory authority.
Where the combined equity investment proportion of all overseas financial institutions in a listed Chinese financial institution is equal to or exceeds 25 percent, the listed Chinese financial institution shall still be treated as a Chinese financial institution by the regulatory authority.
 
Article 10 When filing an application for the equity investment in a Chinese financial institution by an overseas financial institution, the Chinese financial institution shall act as the applicant and submit the application to the CBRC for approval.

(1) Where the applicant is a wholly State-owned commercial bank, a joint-stock commercial bank, or a non-bank financial institution supervised directly by the CBRC's headquarters, the application shall be submitted directly to the CBRC's headquarters for approval.

(2) Where the applicant is a Chinese financial institution other than those provided in the previous paragraph, the application shall be submitted to the CBRC's local office in the location of the applicant, and, following the review and approval of the CBRC's local office, to the CBRC's headquarters for final approval.
 
Article 11 The Chinese financial institution applying for the equity investment by an overseas financial institution shall submit the following documents and information to the CBRC:

(1) an application letter for the equity investment;

(2) the corporate resolution adopted by the general meeting of shareholders or the board of directors of the Chinese financial institution to approve the proposed equity investment, or the relevant approval document(s) issued by the applicant's supervisory authority;

(3) the corporate resolution adopted by the general meeting of shareholders or the board of directors of the overseas financial institution to approve the proposed equity investment;

(4) a letter of intent signed by both parties;

(5) the annual reports or the audited financial statements including the balance sheet and the income statement of the overseas financial institution for the last three consecutive years;

(6) a description of the funding sources, business performance and other related information of the overseas financial institution; and

(7) other documents and information required by the CBRC.
Where the equity investor is a foreign financial institution, the Chinese financial institution shall also submit the rating report issued by an international rating agency recognized by the CBRC to provide the investor's credit ratings for the past two consecutive years as well as the letter of consent from the investor's home country supervisor.
 
Article 12 Upon receiving a complete set of application documents and information, the CBRC shall provide its decision of approval or denial within three months; if the application is denied, the applicant shall receive a written notice in which reasons for denial are provided.
 
Article 13 Upon receiving the approval from the CBRC, the overseas financial institution shall transfer the full amount of capital required for equity investment to the bank account of the Chinese financial institution within 60 working days, which shall be verified by an accounting firm recognized by the CBRC.
 
Article 14 Where the equity investment by the overseas financial institutions leads to a change in the amount of registered capital or equity structure of the Chinese financial institution, the Chinese financial institution shall proceed to apply for the approval of the change in accordance with applicable procedures and regulations.
 
Article 15 Where a Chinese financial institution is found in violation of the Rules to change its shareholder or its equity structure without approval, it shall face a penalty imposed by the CBRC in accordance with applicable regulations.
 
Article 16 The relevant provisions of the Rules shall be applicable to the increase of the equity holdings of an overseas financial institution in its capacity as an existing shareholder of the Chinese financial institution.
 
Article 17 The Rules shall be applicable to the equity investment in a Chinese financial institution by financial institutions incorporated in Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan region. Where the State Council provides otherwise, the provisions issued by the State Council shall prevail.
 
Article 18 The Rules is not applicable to the activities of the Qualified Foreign Institutional Investors (QFII) to purchase the marketable shares of the listed Chinese financial institutions.
 
Article 19 The activities in respect to equity investment in an auto financing company by overseas financial institutions shall be governed by the relevant provisions of the Administrative Rules Governing the Auto Financing Company.
 
Article 20 The CBRC shall have the power of the interpretation of the Rules
 
Article 21 The Rules shall enter into effect on December 31, 2003 and shall prevail where there is any discrepancy between the Rules and the formerly promulgated documents.