China’s Law on Domestic B-Share Stock Market

FULL TEXT OF REGULATIONS GOVERNING CHINESE NATIONALS WHO
ENTER THE DOMESTIC B-SHARE STOCK MARKET

Promulgated by the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE), and jointly released on 26 February 2001)

SUBJECT: SECURITIES

ISSUING-DEPT:CHINA SECURITIES REGULATORY COMMISSION

ISSUE-DATE: 02/26/2001

IMPLEMENT-DATE: 02/26/2001

TEXT:

1. In accordance with Article 4 of the Regulations of the State Council on Listing of Foreign Capital Shares by Joint-Stock Limited Cos. (State Council Decree No.189) issued in 1995 and the CSRC decision to permit investment in the B-share market by Chinese nationals issued on Feb. 19, Chinese nationals may invest in the B-share market as directed by this notice.

2. Before June 1, Chinese nationals engaged in B-share trading are only allowed to use spot exchange deposits and foreign currency cash deposits which were deposited in domestic commercial banks before Feb. 19 (including Feb. 19, the same below). Foreign currency in cash or other foreign exchange funds shall not be used. Foreign currency deposits placed in domestic commercial banks before Feb. 19, and renewed upon maturity after Feb. 19, may be used by Chinese nationals as funds for B-share trading. After June 1, Chinese nationals will be allowed to trade B-shares with spot exchange deposits and foreign currency cash deposits that have been made to domestic commercial banks after Feb. 19, as well as foreign exchange funds transferred from overseas. However, foreign currency in cash will still be forbidden in B-share trading.

3. Securities companies and trust investment companies that are permitted by the CSRC to conduct B-share business-and by SAFE to transact foreign exchange-may, with specific certificates from the CSRC and permits from SAFE, open B-share margin accounts in domestic commercial banks or their branches that are located in the same city and have gained permission to operate foreign exchange deposit and remittance businesses. The branches of the aforesaid companies may, by providing a copy of the head office’s qualification certificate and a copy of the license bearing the seal of the branches, go through the formalities for opening an account. Securities companies and trust investment companies or their branches (hereinafter referred to as “securities operating institutions”) can only open one B-share margin account at one domestic commercial bank. They shall not open more than one B-share margin account at one domestic commercial bank. Securities operating institutions shall, within three business days after the opening of the account, report the name of the bank of deposit to the local SAFE or its branch (hereinafter referred to as “foreign exchange bureau”) for record, and publicize the opening of the account in local news media.

4. If Chinese nationals open a B-share fund account and stock account, the opening of the account shall be handled in accordance with the following procedures:

A. Prospective account-holders must go to the bank in which they have foreign exchange deposits and, after presenting valid identification, may then transfer their spot exchange deposits and foreign currency cash deposits into B-share margin accounts of the securities operating institution in the same bank of the same city. Temporarily, transfer of foreign exchange fund between different banks or between different localities is not allowed. Domestic commercial banks must provide credit receipts to account holders and present securities operating institutions with a statement of accounts.

B. Accompanied by valid identification and a credit receipt, an applicant may then go to the securities operating institution to open a B-share fund account. The minimum amount of money to open a B-share fund account shall be equivalent to US$1,000.

C. With the certificate for the opening of the B-share fund account, the person shall go to the securities operating institution to open a B-share stock account.

5. Domestic commercial banks, while handling the transfer of foreign exchange for Chinese nationals, must check the date of deposit and the fund being transferred strictly in accordance with the stipulations of this notice. Until June 1, Chinese investors may only use foreign exchange savings deposited before Feb. 19 to buy B shares. If the fund is transferred from a current deposit account of a Chinese national, the amount of money to be transferred shall not exceed the balance on the account before Feb. 19. While foreign exchange is transferred, the currency to be transferred shall be converted into the same currency as on the B-share margin account of the securities operating institution.

6. For a B-share fund account owned by a Chinese national, income includes the foreign exchange transferred from the spot exchange deposit account or the foreign currency cash deposit account, and the foreign exchange acquired from B-share trading. Expenditure includes the foreign exchange needed for the B-share trading and any foreign exchange transferred to the domestic commercial bank as savings. The expenditures shall exclude overseas payment.

All foreign exchange transferred from B-share fund accounts of a Chinese national to a domestic commercial bank as savings shall be managed according to provisions concerning cash management as prescribed in the Provisional Measures on the Management of Foreign Exchange Owned by Chinese nationals, as well as other regulations related to cash management. Chinese nationals shall not withdraw foreign currency in cash from the B-share fund account.

7. For the B-share fund accounts of non-residents, of any nationality, the incomes include foreign exchange funds remitted from overseas, legal spot exchange deposits of domestic commercial banks and foreign exchange acquired from B-share trading. The expenditures include foreign exchange remitted overseas, deposited in legal foreign exchange accounts opened within the territory of China and needed for the B-share trading. Nonresidents shall not withdraw foreign currency in cash from the B-share fund account.

8. Chinese nationals and nonresidents of any nationality shall not engage in the assignment of B-share agreements among themselves. Chinese nationals shall not entrust the B shares they’ve bought to overseas institutions.

9. All domestic commercial banks that open B-share margin accounts for securities operating institutions may handle the receipts and payments of funds in foreign exchange between securities operating institutions and securities registration and settlement companies, as well as between the head offices and branches of securities operating institutions under the B-share trading account.

10. Securities operating institutions, domestic commercial banks, Chinese nationals and non-residents of any nationality must conduct business in B-share trading accounts strictly in accordance with provisions in this notice and other related stipulations of the CSRC and foreign exchange bureaus. Illegal actions such as evasion of exchange controls and unlawful procurement of exchange is prohibited. Violators will be penalized under the law by the CSRC and foreign exchange bureaus.