The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo; and the head offices of all domestic designated foreign exchange banks:

To deepen the reform of administration of external guarantees provided by domestic institutions and to support domestic institutions participation in international economic and financial cooperation, in accordance with the Measures for the Administration of External Guarantees Provided by Domestic Institutions (Yinfa No.302 [1996]) (hereinafter referred to as the Measures), the SAFE has decided to further adjust the mode of administration for external guarantees provided by domestic institutions. We hereby notify you of the following relevant issues:

1. The term external guarantee as referred to in this Circular means that under the Guaranty Law of the Peoples Republic of China, the Property Law of the Peoples Republic of China, and the Measures, a domestic institution (guarantor) promises an overseas institution (beneficiary), in the form of a surety, mortgage, pledge, and so forth, that if the debtor (a domestic or overseas institution) fails to fulfill its contractual obligations, the guarantor shall perform the obligations or the beneficiary shall, under the Guaranty Law of the Peoples Republic of China and the Property Law of the Peoples Republic of China, receive priority repayment with the proceeds from the auction or sale of the collateral or pledge.

A guarantee provided for a debtor by a domestic institution shall be treated as an external guarantee and shall be governed by this Circular if the debtor is an overseas institution but the beneficiary is a domestic institution.

The term financing external guarantees as referred to in this Circular means  external guarantees for which the master contract has a financing nature, including but not limited to guarantees provided for borrowing, bond issuances, and financing leases, as well as other forms of external guarantees recognized by the SAFE.

The term non-financing external guarantees as referred to in this Circular means external guarantees other than financing external guarantees, including but not limited to quality guarantees, liability guarantees for completion of a project, tender guarantees, advance payment guarantees, deferred payment guarantees, and performance guarantees under a goods purchase and sales contract, as well as other forms of external guarantees recognized by the SAFE.

The term enterprisesas referred to in this Circular means legally formed non-financial corporate institutions other than banks and non-banking financial institutions.

2. The SAFE administers the external guarantees provided by domestic institutions based on balanced management or case-by-case approval. The financing external guarantees provided by domestic banks shall be subject to balanced management, whereas the external guarantees provided by non-banking financial institutions and enterprises generally shall be subject to case-by-case approval, or when conditions permit may be subject to balanced management.

3. To provide financing external guarantees, a domestic bank qualified to operate the guarantee business may apply to the local branch/sub-branch or foreign exchange administrative department of the SAFE (hereinafter collectively referred to as the foreign exchange authorities, with the branches and foreign exchange administrative departments hereinafter referred to as SAFE branches) for a balance quota for the external guarantees (hereinafter referred to as quota). Within the quota approved by the foreign exchange authority, the bank may provide financing external guarantees at its sole discretion and need not apply to the foreign exchange authority for approval on a case-by-case basis.

There is no quota limit on non-financing external guarantees provided by a domestic bank qualified to operate the guarantee business, and the bank need not apply to the foreign exchange authority for approval on a case-by-case basis provided that there is compliance with the relevant risk management provisions of the regulatory authorities.

4. A domestic bank shall make a quota application according to the following principles:

(1) For a domestic corporate bank, the application shall be filed by the corporate body; and

(2) For a branch of a foreign bank without a corporate body within China , the branch may make an application independently, or the principal reporting bank of the affiliated banks (branches) in China , which exercises centralized management of the quota, may make a unified quota application.

5. A domestic bank shall, before April 15 of each year, apply to the local foreign exchange authority for the current years quota, and the local SAFE branch shall gather such applications and preliminarily examine them.

Each local SAFE branch shall fill out the Demand Schedule for External Guarantee Balance Quotas for ××× (year) (see Annex 1) after the preliminary examination, submit it along with the quota application reports of the SAFE branch and all banks to the SAFE for approval, and assign the approved quotas to the banks.

Before the current years quotas are assigned, the last years quotas shall remain valid. If a banks quota for the current year is decreased, the bank shall not provide any new external guarantees before reducing its balance of financial external guarantees to within the current years quota.

To apply for a quota for the first time, a bank may, as needed, apply to the SAEF through the local SAFE branch.

6. The foreign exchange authorities shall assign a quota to a bank mainly based on the paid-in capital or working capital in both RMB and foreign currency or the net asset scale of the foreign exchange of the bank. The foreign exchange authorities may make corresponding adjustments by referring to the banks performance of external guarantees, regulatory compliance in providing external guarantees and assessed implementation of the foreign exchange administration provisions in the last calendar year, the banks business development plan for the current year, and the states balance-of-payments situation and policy control needs for the current year, and so forth.

7. Generally, the quota for a single bank shall not exceed 50 percent of its paid-in capital or working capital in both RMB and foreign currency, or shall not exceed its net asset value of foreign exchange.

8. To apply for an annual quota, a bank shall submit:

(1) An application report and the Application Form for a Balance Quota for External Guarantees Provided by a Domestic Institution (see Annex 2);

(2) Its last years consolidated balance sheet and earnings statement as well as a statement on the source and application of foreign exchange capital (if it is applying for the first time, it shall also submit photocopies of its financial business permit and business license);

(3) A statement of its external guarantee business and regulatory compliance during the last calendar year (except for a newly formed bank);

(4) The current years business development plan; and

(5) Other materials as set forth by the foreign exchange authority.

9. The quota for a domestic bank subject to balanced management may be directly used by the bank or may be broken down for use by its domestic branches (including the branches and sub-branches of a foreign bank which exercise centralized control over the quota and have no corporate body within China ).

10. A bank shall strictly control its financing external guarantees within the quota assigned by the foreign exchange authority. The debtor shall not be subject to such conditions as its equity relationship with the domestic institution, net asset proportions, and profits and losses, but shall comply with the guaranty laws and regulations of the state as well as the relevant administrative provisions of the industrial regulatory authority.

11. In a non-financing external guarantee provided by a bank, at least one of the debtor and the beneficiary shall be a corporate body legally formed and registered within China, or at least one of them shall be an overseas institution which is formed by a domestic institution or in which a domestic institution directly or indirectly holds shares according to the relevant provisions.

12. The head office of a bank or the principal reporting bank which exercises centralized control over the quota shall gather the external guarantees provided by the entire bank in a timely manner, and within the first five workdays of each month it shall handle the regular filing formalities for external guarantees at the local foreign exchange authority by filling out the Form for Filing for All External Guarantees Provided by a Domestic Bank, a Case-by-Case Form for Filing New Financing External Guarantees Provided by a Domestic Bank, and a Case-by-Case Form for Filing for Performance of Financing External Guarantees Provided by a Domestic Bank (see Annex 3 [1], [2], and [3]). The above filing formalities shall be regarded as registration formalities, and the foreign exchange authority shall no longer issue external guarantee registration certificates to the bank.

For an external guarantee provided in the name of a banks domestic branch office, the branch office shall also file the relevant data with the local foreign exchange authority according to the above requirements, but such data shall not be incorporated into the external guarantee statistics of the foreign exchange authority system.

The entry into force of a financing external guarantee provided by a bank within the quota shall not be conditioned upon going through the filing formalities with the foreign exchange authority. External guarantees provided beyond the quota without approval shall be dealt with under the Measures and other relevant provisions.

13. To provide external guarantees, a domestic non-banking financial institution or enterprise shall submit each to the foreign exchange authority for approval. In the case of a domestic non-banking financial institution or enterprise (including a wholly foreign-funded enterprise) which has a large number of external guarantees and sound internal management, its corporate body may apply to the foreign exchange authority for an approved balance of external guarantees (including both financing and non-financing external guarantees) under the procedures prescribed for in Articles 5 and 8 of this Circular. For external guarantees within the approved balance, a domestic non-banking financial institution or enterprise need not apply to the foreign exchange authority for approval on a case-by-case basis.

(1) If the guarantor is a non-banking financial institution, its quota shall be decided with reference to the basis as prescribed in Articles 6 and 7 of this Circular.

(2) If the guarantor is an enterprise, as a general requirement the proportion of its net assets to its total assets shall not be lower than 15 percent, and the approved balance assigned by the foreign exchange authority to the enterprise or the balance of its external guarantees approved on a case-by-case basis shall not exceed 50 percent of its net assets.

14. To provide external guarantees, non-banking financial institutions and enterprises shall observe the following provisions:

(1) The debtor shall meet the following requirements:

` If the guarantor is a non-banking financial institution, the debtor must be a corporate body legally formed and registered within China or an overseas institution which is formed by a domestic institution or in which a domestic institution directly or indirectly holds shares according to the relevant provisions.

If the guarantor is an enterprise, the debtor must be a domestic or overseas enterprise which is formed by the guarantor or in which the guarantor directly or indirectly holds shares under the prescribed procedures.

a The net asset value of the debtor shall be positive.

b The debtor shall have made profits in at least one of the past three years. If the debtor engages in resource development or any other long-term project, it shall have made profits in at least one of the past five years. There shall be no mandatory profit requirement for the debtor if it has not been three years (for an ordinary enterprise) or five years (for a resource development enterprise) since its formation.

This requirement does not apply to a repo guarantee provided to a domestic bank by a domestic real estate developer for a non-residential housing mortgage loan.

(2) To provide the following external guarantees, a non-banking financial institution or an enterprise subject to balanced management must apply to the foreign exchange authority for approval on a case-by-case basis:

` If the external guarantee to be provided does not meet the requirements of this Circular and other relevant provisions in terms of the quota scale, net asset value, or profits, it shall be reported to the SAFE for approval on a case-by-case basis through the local SAFE branch.

a If the subject matter of the guarantee is an obligation to repay the debt under a financing contract and the financing purpose of the debtor is to acquire equities of an overseas enterprise (target company), or if the debtor is the transferee under a contract for transferring the equities of an overseas enterprise (target company) and the subject matter of the guarantee is an obligation to pay the equity transfer price under the equity transfer contract, the guarantee shall be reported for approval to the SAFE branch at the place where the guarantor is located, and the guarantor shall provide the approval document issued by the overseas investment authority of the state on the overseas investment or acquisition project in which the relevant enterprise (the debtor or any affiliated enterprise thereof) participates (see Annex 4 for relevant operational guidance).

Each external guarantee approved by the foreign exchange authority on a case-by-case basis shall be included within the scope of the quota control. If the quota is inadequate, the foreign exchange authority may adjust it at the time of approval on a case-by-case basis.

(3) Wholly foreign-funded enterprises not subject to balanced management shall handle the case-by-case approval, registration, and other formalities for their external guarantees with reference to the principles for the administration of ordinary enterprises.

(4) A non-banking financial institution or an enterprise shall, within 15 days after entering into an external guarantee contract, handle the case-by-case registration formalities for the external guarantee at the local foreign exchange authority. For an external guarantee subject to balanced management, the local foreign exchange authority shall, according to the relevant provisions, check the qualifications other than those of the guarantor itself and issue an external guarantee registration certificate.

15. To provide an external guarantee, a domestic institution shall handle the performance formalities according to the following provisions:

(1) Where a bank needs to perform a financing or non-financing external guarantee, it may make foreign payments under the guarantee at its own discretion. The sources of capital needed for providing an external guarantee may be foreign exchange advances, the deposit paid by the counter guarantor in foreign exchange or RMB, or the payment made by the counter guarantor for a default on the debt.

To provide an external guarantee, a non-banking financial institution or an enterprise must apply to the local foreign exchange authority for approval on a case-by-case basis and may purchase foreign exchange for the purpose of providing the external guarantee.

(2) Where the guarantor is a bank or non-bank financial institution, if the counter guarantor voluntarily performs its payment obligation under the counter guarantee, the counter guarantor may directly handle the foreign exchange purchase or payment formalities at the bank upon the strength of the documentary evidence on the performance of the guarantee, and the guarantor shall on its own enter the relevant foreign exchange capital into the account. If the debtor under the external guarantee voluntarily performs its repayment obligation to the guarantor, the debtor and the guarantor may handle their payment and collection formalities respectively.

Where the debtor or the counter guarantor fails to voluntarily perform its repayment obligation for repayment or performance of the guarantee for various reasons, the guarantor may purchase foreign exchange with RMB legally collected from the debtor or the counter guarantor with reference to the provisions for bank foreign exchange settlements or sales on behalf of debtors.

(3) Where an enterprise acts as a guarantor or a counter guarantor as noted in paragraph (2), the foreign exchange recovered from the debtor may be settled upon the approval of the foreign exchange authority.

16. Domestic insurance companies providing external guarantees shall be regarded as banks in the filing of the data and the performance of the guarantee, which means that their performance of external guarantees is not subject to approval by the foreign exchange authority, but they shall go through the regular filing formalities for external guarantees under Article 12 of this Circular.

17. All domestic institutions providing external guarantees shall be governed by the following provisions:

(1) Domestic institutions providing external guarantees shall comply with the guaranty laws and regulations of the state as well as the administrative provisions of the industrial regulatory authorities for guarantee business and strengthen the relevant risk controls.

(2) Domestic institutions providing external guarantees for debtors that are joint ventures formed domestically or overseas shall not be restricted by any equity investment proportion for a domestic or overseas institution.

(3) As for a financing external guarantee provided for an overseas invested enterprise, the capital under the guarantee shall not be transferred back to China directly or through a third party in the form of borrowing, equity investment, or securities investment. The domestic guarantor or the overseas investee of the parent company of the enterprise within China shall oversee the use of the capital acquired by the debtor to ensure that the capital is used for the overseas production and operation activities of the debtor.

(4) A domestic institution that provides a non-financing external guarantee may, based on its actual business needs, choose not to specify the amount and terms of the guarantee in the contract as long as the guarantee obligations are defined. When handling the approval, registration, and filing formalities for the external guarantee, the foreign exchange authority or the guarantor may determine the amount and terms noted in the contract for the guarantee, which are mostly related to the guarantors payment obligations with respect to the referenced amount and the terms for the performance obligations under the guarantee, but the guarantors actual payment obligations under the external guarantee shall not be restricted by reference to the amount and the term.

(5) The debt amount under an external guarantee shall not be restricted by the scale of the foreign exchange income of the guarantor.

(6) Unless it is otherwise provided in this Circular, domestic institutions shall handle the contract signing, registration, modification, performance, and cancellation formalities for the external guarantees in accordance with the Measures, the Detailed Rules for Implementation of the Measures for the Administration of External Guarantees Provided by Domestic Institutions (Huizhengfa No.10 [1997], hereinafter referred to as the Detailed Rules), and other relevant provisions.

(7) The transfer of any right or debt under an external guarantee shall conform to the foreign exchange administration provisions.

18. A counter guarantee provided by a domestic institution for a domestic or overseas institution (debtor) to its overseas guarantor shall be regarded as an external guarantee, and the domestic institution providing the counter guarantee and the domestic or overseas institution as the debtor must conform to the provisions of this Circular.

Where a domestic institution provides a counter guarantee for the debtor (a domestic or overseas institution) to another domestic institution that provides an external guarantee for the debtor according to the external guarantee provisions, the counter guarantee shall not be regarded as an external guarantee, but shall conform to the relevant foreign exchange administration provisions.

19. To provide mortgages, pledges, and so forth, a guarantor must comply with the relevant provisions of the relevant authorities for collaterals and pledges.

Where a guarantor provides an external mortgage, pledge, and so forth for its own legal foreign debt or other foreign payment obligations, it shall not be subject to the relevant qualifications for external guarantees, inclusion in the quota control, or a case-by-case application to the foreign exchange authority for approval, but it shall go through the regular filing formalities or the case-by-case registration for external guarantees at the local foreign exchange authority. In the event of the provision of a guarantee, a non-banking financial institution or an enterprise shall apply to the foreign exchange authority for approval on a case-by-case basis.

A guarantor providing a mortgage or pledge for the debt of a third party shall be subject to the same foreign exchange administration provisions for third party guarantees in terms of the qualifications and requirements, except where specially provided for.

20. The foreign exchange authorities shall supervise and inspect the external guarantee business of domestic institutions. Where any institution provides external guarantees without approval, beyond the approved quota, or in violation of this Circular or other related provisions, the foreign exchange authority may, as the case may be, cut its current years quota, subject it to case-by-case approval instead of balanced management, or take other measures and impose punishments in accordance with the Regulation of the Peoples Republic of China on Foreign Exchange Administration and other relevant provisions. If the circumstances are serious, the foreign exchange authority shall suspend its external guarantee business.

21. All SAFE branches shall, after receiving this Circular, forward it to the central sub-branches and financial institutions within their respective jurisdictions as soon as possible.

22. This Circular shall come into force on the date of issuance. Paragraph 1 of Article 5 of the Measures and Article 21 of the Detailed Rules shall cease to be effective from the date of issuance of this Circular. The Circular of the State Administration of Foreign Exchange on Adjusting the Management Mode of Overseas Financial Guarantees Provided by Domestic Banks for Overseas Investments of Enterprises (Huifa No.61 [2005] ) issued on August 16, 2005 and other relevant normative documents (see Annex 5) shall be abolished simultaneously. For any discrepancy between this Circular and any other regulation issued by the SAFE, this Circular shall prevail.

(Annex omitted)