1. Foreign Exchange Registrations and Foreign Exchange Account

Within 30 days of obtaining the Enterprise Legal Person Business License of the People's Republic of China, the enterprise shall present the State Administration of Exchange Control or its branches (hereinafter referred to as AECs) with the following documentation (duplicate or photocopy) to go through foreign exchange registration formalities and to obtain the "Foreign-Invested Enterprises Foreign Exchange Registration Certificate'' (hereinafter referred to as the "Registration Certificate"):the approval documentation by examining and approving authorities, feasibility study report, business license issued by State Industrial and Commercial Administrative Department and other materials needed by the AECs.

When having gone through foreign exchange registration formalities, the enterprise can go to the designated foreign exchange bank in the place where the enterprise is registered to open the foreign exchange capital account, the foreign exchange balance account and other special-purposed foreign exchange accounts upon presentation of the "Registration Certificate" and the approval by the AEC of opening foreign businessmen's accounts.

Should an enterprise need to open a foreign exchange account in another place due to the need of its business operation, it shall apply with the local AEC in the place where the enterprise is located. With the approval documentation by the AEC, the enterprise shall enter into records of the AEC in the destined place and then approach the designated foreign exchange bank to go through account opening procedures.

Should an enterprise need to open a foreign exchange account abroad, including Hong Kong and Macao, it shall apply with the AEC in the place where the enterprise is registered. Only after approval has been granted can the enterprise open such an account.

2. Administration of Foreign Exchange Income and Payment

It is stipulated in our country's foreign exchange administration provision that "within the territory of China, no circulation of foreign exchange is allowed and all business clearance shall not be in foreign exchange." So enterprises~ foreign exchange income and payment normally refer to their clearance with overseas units or individual. The stipulated regulations for receiving and paying foreign exchange are as follows:

(I). Enterprises' revenue in the form of foreign exchange shall be deposited in its opening bank in China. Without the permission from AEC, the revenue cannot be deposited abroad. The capital fund received from sources other than the investors in the form of foreign exchange shall be deposited under "foreign exchange capital account"; foreign exchange revenue from the enterprise's operations shall be deposited under "foreign exchange balance account". An enterprise can retain foreign exchange within the maximum amount approved by the AEC. Any surplus should be sold in banks or through foreign exchange swapping centers. Foreign exchange revenues other than the above-mentioned ones shall be deposited under "special-purposed account" approved by the AEC.

(II). An enterprise which exports products shall, before exporting, approach the AEC to obtain the "Export Exchange Earning Writing-off Certification", and shall, after exporting, go through the export exchange earnings writing-off formalities in conformity with the "Administrative Methods on Export Exchange Writing-off" and the Rules jointly promulgated by the SAEC and other agencies. The enterprise shall produce the reference letter, certificate of qualification personal for Export Exchange Earning Writing-off, and the IC card of Chinese electronic ports, If it is the first time of application, the enterprise shall produce the following documents and certificates to the AEC for registration: 1. Reference letter and application letter; 2. Original and duplicate of approval certificates issued by authorities of foreign trade and economic cooperation, 3. Qualification Certificate of Import and Export Companies of PRC; Duplicate and copy of License of Legal Person Registration, 4. Copy of Code Certificate of Institution of Enterprise; 5. Copy of Customs Registration; 6. Copy of export contracts.

(III). When enterprise imports from abroad, it shall, in accordance with the SAEC's "Provisional Administrative Methods on Import Exchange Payment Writing-off", go through exchange writing-off formalities at the paying bank before it pays for the imports.

When an enterprise pays foreign exchange for its imports, it can make its payment directly through its opening bank from its foreign exchange account upon presentation of effective business documentation and certification (e.g. import contract, import exchange payment writing off certificate, application for opening and L/C, L/C, documentation needed for the settling of D/P, etc.) in accordance with its paying method (e.g. L/C, D/P, remittance, etc.). Any secondary payments related to the trade shall have their receipt documents presented.

(IV). Any advance payment amounting to either less than 15% of the contract volume or less than USS100, 000 can be made directly through its opening bank from its foreign exchange account upon presentation of import contract and import foreign exchange payment writing off certificate. If the volume of the payment exceeds the above restrict, payment shall be subject to the checking and approval of AEC.

(V) When an enterprise remits abroad the profit, dividend and interest of foreign investors, upon presentation of the distribution resolution Of the BOC and the tax-paid certificate, it can make the payment directly from its foreign exchange account.

(VI). When an enterprise remits abroad salaries of foreign, overseas Chinese, Hong Kong and Macao employees, upon presentation of the employment contract between the enterprise and the employee, the tax-paid certificate, etc., it can make the payment directly from its foreign exchange account.

(VII). When an enterprise in undergoing liquidation, because of the expiration of operational period or when with the approval it terminates, its operation, the foreign exchange gained by the foreign investors (if the gain is in the form of RMB, foreign exchange can be bought in banks) can be remitted abroad with AEC's approval after legal liquidation.

(VIII). With the approval of the AEC, Sino-foreign cooperative ventures can remit abroad the repayment of the foreign investment according to their cooperation contract.

(IX) With AEC's approval, an enterprise can go through its principal and interest payment formalities with a relevant bank, presenting "Foreign Debt Registration Certificate" issued by AEC and the principal and interest payment approval.

3. Foreign Debt Registration Administration

An enterprise can borrow from overseas financial institutions (including foreign-funded banks in China), enterprises and private individuals without the permission from government departments (except those guaranteed by the Chinese side). However, within 15 days of the signature of the overseas borrowing contract, the enterprises shall approach to the local AEC to go through foreign debt registration formalities, presenting a copy of the contract. AEC shall be updated of any changes regarding the utilization and repayment of foreign exchange debt in due course.

The exchange of the foreign debt into RMB and return of the foreign debt shall be approved by AEC. Enterprises shall notify AEC timely of the change of its foreign debts (use and return)

4. Re-investment of RMB Profits

The profits in the form of Renminbi (RMB, Chinese Currency) derived by a foreign investor from his investment in China can be re-invested in the same enterprise or in other projects in China with the approval of AEC. When making an application, the foreign investor shall present the AEC with such documents as the annual account inspection report and the certificate of investment inspection (both of which verified by a CPA registered in China), the profit distribution of the BOD, the Tax -paid certificate, etc. The AEC, after checking the above materials, will issue a certificate verifying the source of the RMB capital, which has not been remitted out side China. Apart form the above-mentioned RMB; the RMB gathered from other sources by the foreign investor cannot be considered as legal investment capital in the territory.

5. Foreign Exchange Examination System

The AEC administrates enterprises' foreign exchange operations according to the related foreign exchange administration stipulations. Besides daily administration, the AEC, together with the foreign trade and economic cooperation and the industrial and commercial administrative authorities exercise annual examination on enterprises. The annual examination includes paid-in capital by each party to the investment, opening and using of the foreign exchange account, foreign exchange revenue, expenditure and balance, foreign exchange debts, etc.
An enterprise shall approach the local AEC to go through the annual examination formalities by April 30 each year, presenting the certificate of Registration, and the annual Account Inspection Report of the previous year by a CPA registered in China. Should any activities be found having violated the foreign exchange administration stipulations, the AEC shall handle it according to the Foreign Exchange Administration Stipulations of P. R. China.