（Promulgated by the China Banking Regulatory Commission on 29 December 2004 and effective as of 1 March 2005.）

PART ONE　GENERAL PROVISIONS

Article 1　These Guidelines have been formulated in accordance with the PRC， Banking Regulation Law， the PRC， Commercial Banking Law and other relevant laws and administrative regulations in order to strengthen the management of market risks by commercial banks.

Article 2　For the purposes of these Guidelines， the term “commercial banks” shall refer to commercial banks established in the People‘s Republic of China according to law， including Chinese-funded commercial banks， wholly foreign-owned banks and Sino-foreign joint venture banks.

Article 3　For the purposes of these Guidelines， the term “market risks” shall refer to the risks of incurring loss in the on- and off-balance-sheet businesses of banks as a result of adverse change in market prices （interest rates， exchange rates， share prices and commodity prices）。 Market risks exist in trading and non-trading businesses of banks.

Market risks may be divided into interest rate risks， exchange rate risks （including gold）， share price risks and commodity price risks， which refer to， respectively， the risks created by any adverse change in interest rates， exchange rates， share prices and commodity prices. Depending on the source of risks， interest rate risks may be divided into repricing risks， yield curve risks， basis risks and optionality risks.

For the purposes of the preceding paragraph， the term “commodity” shall refer to certain physical products that can be traded on a secondary market， such as agricultural products， mineral products （including oil） and precious metals （excluding gold）。

Article 4　Market risk management is the total process of identifying， measuring， monitoring and controlling market risks. The objective of market risk management is the maximization of risk-adjusted returns by controlling market risks within a reasonable range that can be borne by commercial banks.

Commercial banks shall adequately identify， accurately measure， continuously monitor and appropriately control the market risks in all trading and non-trading businesses to ensure safe and steady operation below a reasonable market risk level. The level of market risks borne by a commercial bank shall be compatible with its market risk management capability and capital strength.

To ensure effective implementation of market risk management， commercial banks shall integrate market risk identification， measurement， monitoring and control with business management activities throughout the bank such as strategic planning， business decision-making and financial budgeting.

Article 5　The China Banking Regulatory Commission （CBRC） shall carry out supervision and administration on the market risk levels and market risk management systems of commercial banks. The CBRC shall urge commercial banks to effectively identify， measure， monitor and control the various types of market risks taken in various businesses.

PART TWO　MARKET RISK MANAGEMENT

Article 6　Commercial banks shall， pursuant to the requirements hereof， establish a sound and reliable market risk management system commensurate with the nature， scale and complexity of the business. A market risk management system shall include the following basic elements：

1. effective supervision and control by the board of directors and senior management；

2. sound policies and procedures for market risk management；

3. sound procedures for identifying， measuring， monitoring and controlling market risks；

4. sound internal control and independent external audit； and

5. appropriate mechanism for market venture capital allocation.

Art

icle 7　In carrying out market risk management， a commercial bank shall give due consideration to the correlation of market risks with other types of risks such as credit risks， liquidity risks， operational risks， legal risks and reputation risks， and coordinate the policies and procedures for the management of market risks with those for the management of other types of risks.

Section One　Supervision and Control by Board of Directors and Senior Management

Article 8　The board of directors and senior management of commercial banks shall implement effective supervision and control on market risk management system.

The board of directors of a commercial bank shall undertake the ultimate responsibilities for implementing supervision and control on market risk management， and shall ensure that the commercial bank effectively identifies， measures， monitors and controls various types of market risks taken in various businesses. The board of directors shall be responsible for examining and approving the strategies， policies and procedures for market risk management， determining the level of market risks that can be borne by the bank， urging the adoption of necessary measures by senior management for identifying， measuring， monitoring and controlling market risks， obtaining periodic reports on the nature and level of market risks， monitoring and assessing the comprehensiveness and effectiveness of market risk management and the performance of duties by the senior management with respect to market risk management. The board of directors may delegate part of the above functions to its subordinate special committee. The authorized committee shall submit the relevant reports to the board of directors on a regular basis.

The senior management of a commercial bank shall be responsible for formulating， periodically examining and supervising the execution of the policies， procedures and specific operational rules for market risk management， understanding in a timely manner the level of market risks and the management thereof， and ensuring that the bank has sufficient human and material resources and the appropriate organizational structure， management information system and technology standards to effectively identify， measure， monitor and control the various types of market risks taken in various businesses.

The board of directors and the senior management of a commercial bank shall have an adequate understanding of the businesses of the bank related to market risks， the various types of market risks borne by the bank and the corresponding methods for risk identification， measurement and control.

The board of supervisors of a commercial bank shall supervise the performance of the board of directors and the senior management of their duties with respect to market risk management.

Article 9　Commercial banks shall designate a dedicated department to be responsible for the work of market risk management. The department in charge of market risk management shall have clearly defined duties， maintain relative independence from the risk-taking business operation departments， provide independent market risk reports to the board of directors and the senior management， and have the human and material resources necessary to perform its duties of market risk management. The personnel of the department in charge of market risk management shall have the relevant professional knowledge and skills and a full understanding of the businesses of the bank that are related to market risks， the various types of market risks to be taken and the corresponding methods and technology for risk identification， measurement and control. Commercial banks shall ensure that their remuneration system is able to attract and retain qualified market risk management personnel.

The department in charge of market risk management of commercial banks shall perform the following duties：

1. propose

and define market risk management policies and procedures， and submit the same to the senior management and the board of directors for examination and approval；

2. identify， measure and monitor market risks；

3. monitor the compliance of the relevant business operation departments and branches with market risk limits and report breaches of limits；

4. design and implement back testing and stress testing；

5. identify and assess the market risks inherent in new products and new businesses， and examine the relevant operational and risk management procedures；

6. provide in a timely manner independent market risk reports to the board of directors and the senior management； and

7. other relevant duties.

Commercial banks with relatively complex businesses and relatively high level of market risks shall establish a dedicated market risk management department to be responsible for the work of market risk management.

Article 10　The business operation department of commercial banks that bears market risks shall have a full understanding of and give full consideration to the various types of market risks inherent in the businesses conducted in order to achieve maximization of risk-adjusted returns. Business operation departments shall be liable for the losses arising from the market risks they bear.

Section Two

Policies and Procedures for Market Risk Management

Article 11　Commercial banks shall formulate formal and written market risk management policies and procedures that are applicable throughout the bank. Market risk management policies and procedures shall be commensurate with the nature， scale， complexity and risk characteristics of the bank‘s businesses， consistent with its overall business development strategy， management capability， capital strength and overall risk tolerance level， and in compliance with the relevant requirements of the CBRC regarding market risk management. The main particulars of market risk management policies and procedures shall include：

1. the businesses that may be conducted， financial instruments that may be traded or invested in， and investment， hedging and risk mitigation strategies and methods that may be adopted；

2. the level of market risks that can be borne by a commercial bank；

3. organizational structure， authority structure and accountability mechanism for market risk management with a clear division of labour；

4. procedures for identifying， measuring， monitoring and controlling market risks；

5. market risk reporting system；

6. market risk management information system；

7. internal control of market risks；

8. external audit on market risk management；

9. allocation of market risk capital； and

10. contingency plans in the event of major market risks.

Commercial banks shall revise and improve market risk management policies and procedures in a timely manner in accordance with the market risk status of the bank and the change in the external market.

The market risk management policies and procedures of commercial banks and the major revision thereof shall be approved by the board of directors. The senior management of commercial banks shall elucidate the bank‘s market risk management policies and procedures to the personnel involved in market risk management. Personnel involved in market risk management shall have a full understanding of their authority and duties in connection with market risk management.

Article 12　Prior to launching a new product or a new business， a commercial bank shall fully identify and assess its inherent market risks， establish the corresponding internal examination and approval， operational and risk management procedures， and obtain the approval of the board of directors or its authorized special committee/department. The internal examinat

ion and approval procedures for a new product or new business shall include review and acceptance of its operational and risk management procedures by relevant departments such as the business operation department， the department in charge of market risk management， the legal/compliance department， the finance and accounting department and the settlement department.

Article 13　Market risk management policies and procedures shall be applied on a consolidated basis and， as far as possible， to subsidiaries with independent legal person status， including offshore subsidiaries. However， commercial banks shall be fully aware of the legal differences and obstacles to capital movement among subsidiaries， and shall adjust the risk management policies and procedures accordingly in order to avoid underestimation of market risks in the process of netting positions between subsidiaries where there are legal differences and obstacles to capital movement.

Article 14　Commercial banks shall separate their bank accounts and trading accounts in accordance with the requirements of the CBRC on administration of capital adequacy ratio， and shall adopt such market risk identification， measurement， monitoring and control methods as commensurate with the nature and characteristics of its bank accounts and trading accounts.

Commercial banks shall formulate more detailed and specific risk management policies and procedures for different types of market risk （e.g. interest rate risks） and different types of business （e.g. derivatives trading）， and shall maintain the consistency among them.

Section Three　Market Risk Identification， Measurement， Monitoring and Control

Article 15　Commercial banks shall break down and analyze the market risk factors in each business and product， and identify the types and nature of the market risks in all trading and non-trading businesses in a timely and accurate manner.

Article 16　Depending on the nature， scale and complexity of its businesses， a commercial bank shall select appropriate and generally accepted measurement methods for the different types of market risks in its bank accounts and trading accounts， and shall measure， on the basis of reasonable assumptions and parameters， all the market risks it bears. A commercial bank shall accurately calculate as much as possible the market risks that can be quantified and assess those that are difficult to be quantified.

Commercial banks may use different methods or models to measure the different types of market risks in its bank accounts and trading accounts. Methods for measuring market risks include gap analysis， duration analysis， foreign exchange exposure analysis， sensitivity analysis， scenario analysis and internal-model based value-at-risk calculation. Commercial banks shall be fully aware of the advantages and limitations of each method for measuring market risks， and shall apply other analytical means such as stress testing as a complement.

Commercial banks shall， as far as possible， aggregate the market risks （interest rate risks in particular） measured in its bank accounts and trading accounts on a bank-wide basis in order to enable the board of directors and the senior management to understand the overall market risk level of the bank.

The board of directors， the senior management and the management officers involved in market risk management of commercial banks shall understand the methods and models adopted by the bank for measuring market risks and the assumptions thereof in order to have an accurate understanding of the measurement results of market risks.

Article 17　Commercial banks shall adopt measures to ensure the reasonableness and accuracy of the assumptions， parameters， sources of data and measurement procedures. Commercial banks shall evaluate the assumptions and parameters of the market risk measurement system on a regular basis and formulate interna

l procedures for revising assumptions and parameters. Major revisions of assumptions and parameters shall be subject to the examination and approval of senior management.

Article 18　Commercial banks shall revaluate the trading account positions based on market value at least once a day. The revaluation of market value shall be the responsibility of the middle office， back office， finance and accounting department or other related functional department or personnel that are independent from the front office. The pricing factors to be used in revaluation shall be obtained from channels independent from the front office or otherwise verified independently. The methods and assumptions applied to valuation by the front office， middle office， back office， finance and accounting department and department in charge of market risk management shall be consistent as far as possible. If they are not fully consistent， certain calibration or adjustment methods shall be formulated and applied. In the absence of market prices for market value revaluation， commercial banks shall determine the criteria for selecting and the channel for obtaining alternative data， and the method for calculating fair prices.

Article 19　The CBRC encourages commercial banks with relatively complex businesses and relatively high level of market risks to gradually develop and use internal models to measure value at risk and to conduct quantitative estimation of the level of market risks borne. Value at risk refers to the estimated potential maximum loss that is likely to be caused by change of market risk factors， such as interest rate and exchange rate， to a certain cash position， asset portfolio or organ within a particular holding period at a given confidence level.

Article 20　Commercial banks that use internal models shall reasonably select and regularly examine and adjust the modelling techniques （such as variance-covariance matrices， historical simulations and Monte Carlo simulations） as well as the modelling assumptions and parameters in accordance with the business scale and nature of the bank and with reference to internationally adopted standards， and shall establish and implement internal policies and procedures for introducing new models， adjusting existing models and testing model accuracy. Testing of models shall be conducted by personnel that are independent from those that develop and run the models.

Commercial banks that use internal models shall incorporate the application of models in day-to-day risk management. The information provided by the internal models shall become an integral part of the process of planning， monitoring and controlling market risk asset portfolio.

Commercial banks that use internal models shall appropriately understand and apply the calculation results of the market risk internal models， fully aware of the limitations of the internal models and use stress testing and other non-statistical measurement methods to complement the internal models.

Article 21　Commercial banks shall conduct back testing regularly to compare the estimated results from using market risk measurement methods or models with the actual results and， on the basis of such comparison， adjust and improve the market risk measurement methods or models.

Article 22　Commercial banks shall establish comprehensive and rigorous stress testing procedures to conduct on a regular basis simulation and estimation of the potential losses that may be caused by sudden events of small probability such as drastic change in market prices， or by unexpected political or economic events， in order to assess the tolerance of the bank to loss under extremely adverse conditions. Stress testing shall include qualitative and quantitative analyses.

Scenarios that have major impact on market risks， including historical significant loss scenarios and hypothetical scenarios， shall be selected for stress testing.

Hypothetical scenarios include non-applicability of modelling assumptions and parameters， drastic changes in market prices， serious market illiquidity， and major changes in the external environment that may cause major loss or create difficulty in risk control. Commercial banks shall use the stress scenarios specified by the CBRC and those designed according to the business nature of the bank and market environment in stress testing.

Commercial banks shall， on the basis of the results of stress testing， formulate contingency plans for scenarios that have major impact on market risks and determine whether and how to improve limit management， capital allocation and other policies and procedures for market risk management. The board of directors and the senior management shall examine the design and results of stress testing regularly and enhance the stress testing procedures on an on-going basis.

Article 23　Commercial banks shall implement limit management on market risks， formulate internal examination and approval procedures and operational rules for each type and level of limits， and establish， regularly examine and update the limits in accordance with the nature， scale， complexity and risk tolerance of the businesses.

Market risk limits include trade limits， risk limits and stop-loss limits and may be broken down by region， business operation department， asset portfolio， financial instrument and risk type. Commercial banks shall， according to the different purposes of different limits in controlling risks and the limitations thereof， establish a reasonable limit system in which limits of different types and levels are complementary to one another to effectively control market risks. The overall market risk limit and the types and structure of limits of a commercial bank shall be approved by the board of directors.

In designing its limit system， a commercial bank shall consider the following factors：

1. the nature， scale and complexity of business；

2. the market risk level that can be borne by the commercial bank；

3. the track records of the business operation department；

4. the professional level and experience of personnel；

5. the pricing， valuation and market risk measurement systems；

6. the results of stress testing；

7. the level of internal control；

8. the capital strength； and

9. the development and change in the external market.

Commercial banks shall formulate procedures for monitoring and controlling， and handling breaches of limits. Breaches of limits shall be reported to the management at the corresponding level in a timely manner. The management at such level shall decide whether to approve the breach and the duration of the breach in accordance with limit management policies and procedures. Breaches of limit that are not approved shall be handled in accordance with limit management policies and procedures. The management shall decide whether to adjust the limit management system in light of the occurrence of breaches of limits.

Commercial banks shall ensure consistency among market risk limits， and shall coordinate the limit management of market risks with the limit management of other types of risks such as liquidity risk limits.

Article 24　Commercial banks shall establish a sound and reliable management information system for measuring， monitoring and controlling market risks， and shall adopt corresponding measures to ensure the accuracy， reliability， timeliness and security of data. The management information system shall be able to support the measurement of market risks and the back testing and stress testing it implements， and shall also be able to monitor the compliance with market risk limits and to provide relevant contents for market risk reports. Commercial banks shall establish corresponding reconciliation procedures to ensure the consistency

and completeness of the data of different departments and product lines， and to ensure that accurate pricing and business data is entered into the market risk measurement system. Commercial banks shall improve and update the management information system according to needs in a timely manner.

Article 25　Commercial banks shall formulate contingency plans for scenarios that have major impact on market risks， including taking measures such as hedging and reduction of risk exposure to reduce market risk level， and shall establish contingency or standby systems， procedures and measures for handling natural disasters， failure in banking system and other emergencies， in order to reduce the potential losses incurred by the bank and the potential damage to the bank‘s reputation.

Commercial banks shall use the results of stress testing as an important basis for formulating market risk contingency plans， and shall examine and test such contingency plans regularly and update and improve such contingency plans on an on-going basis.

Article 26　Reports of market risks shall be provided to the board of directors， the senior management and other management personnel in a regular and timely manner. Reports of different levels and types shall comply with the specified scope， procedures and frequency of delivery. A report shall include all or part of the following contents：

1. market risk positions， calculated respectively based on business， department， region and risk type；

2. market risk levels， calculated respectively based on business， department， region and risk type；

3. structural analysis of market risk positions and market risk levels；

4. profits and losses；

5. change in the methods and procedures for market risk identification， measurement， monitoring and control；

6. compliance with the market risk management policies and procedures；

7. compliance with the market risk limits， including handling of breach of limits；

8. particulars of back testing and stress testing；

9. particulars of internal and external audit；

10. allocation of market risk capital；

11. recommendations for improving market risk management policies and procedures as well as market risk contingency plans； and

12. other matters concerning market risk management.

Market risk reports submitted to the board of directors shall generally include contents such as overall market risk positions， risk levels， profits and losses and compliance with market risk limits and other market risk management policies and procedures. Market risk reports submitted to the senior management and other management personnel shall generally include detailed information broken down by region， business operation department， asset portfolio， financial instrument and risk type， and have a higher reporting frequency.

Section Four　Internal Control and External Audit

Article 27　Commercial banks shall establish a comprehensive internal control system for market risk management as an integral part of the bank‘s overall internal control system in accordance with the relevant requirements of the CBRC on internal control in commercial banks. Internal control of market risk management shall facilitate efficient business operations， provide reliable financial and regulatory reports， promote strict compliance by the bank with relevant laws， administrative regulations， departmental rules and internal systems and procedures， and ensure effective operation of the market risk management system.

Article 28　To avoid potential conflict of interests， a commercial bank shall ensure that the duties of each functional department are clearly defined and that related functions are properly separated. Relative independence shall be maintained between the market risk management function and the business operation function of a commercial bank.

The front office and back office of a trading department shall be strictly separated， and the trading staff of the front office shall not participate in formal confirmation of trade， reconciliation， revaluation， settlement of trade and receipt and payment. Where necessary， a middle office supervision and control mechanism may be established.

Article 29　Commercial banks shall avoid conflict of interests between their remuneration system and incentive system， and the objectives of market risk management. The board of directors and the senior management shall avoid the negative effect of a remuneration system that encourages excessively risk-taking investment， prevent performance appraisal from excessive emphasis on short-term investment returns without due regard to long-term investment risks. The remuneration for personnel in charge of market risk management shall not be linked to returns on direct investment.

Article 30　The internal audit department of a commercial bank shall regularly （at least annually） conduct an independent examination and assessment of the accuracy， reliability， adequacy and effectiveness of each component and stage of the market risk management system. Internal audit shall be conducted on both the business operation department and the department in charge of market risk management. Internal audit reports shall be submitted directly to the board of directors. The board of directors shall urge the senior management to submit improvement proposals and adopt enhancement measures for theissues identified in internal audit. The internal audit department shall follow up on and inspect the implementation of improvement measures and submit relevant reports to the board of directors.

A commercial bank‘s internal audit on the market risk management system shall at least include the following contents：

1. the market risk positions and risk levels；

2. the adequacy of documentation in the market risk management system；

3. the organizational structure of market risk management， the independence of the market risk management function， and the adequacy， professionalism and performance of the market risk management personnel；

4. the types and scopes of risks covered by the market risk management；

5. the adequacy and reliability of the market risk management information system， the accuracy and completeness of the market risk position data， and the consistency， timeliness， reliability and independence of the data sources；

6. the reasonableness and stability of the parameters and assumptions used by the market risk management system；

7. the appropriateness of market risk measurement methods and the accuracy of measurement results；

8. the compliance with market risk management policies and procedures；

9. the effectiveness of market risk limit management；

10. the effectiveness of the back testing and stress testing system；

11. the calculation and internal allocation of market risk capital； and

12. the investigation of major transactions in breach of limit， unauthorized transactions and failure in reconciliation of accounts.

Where a new product or new business with major impact on the market risk level is introduced， or where there is a major change or serious defect in its market risk management system， the commercial bank shall expand the scope， and increase the frequency， of internal audit of market risks.

The internal audit personnel of the commercial bank shall have the relevant professional knowledge and skills， have undergone the relevant training， and be able to fully understand the methods and procedures for identifying， measuring， monitoring and controlling market risks.

Article 31　Commercial banks with inadequate internal audit capability shall appoint a social intermediary institution to carry out audit on the nature and levels of marke

t risks and the market risk management system.

The CBRC also encourages other commercial banks to appoint social intermediary institution to carry out audit on the nature and level of market risks， and the market risk management system regularly.

Section Five　Market Risk Capital

Article 32　Commercial banks shall allocate adequate capital for the market risks they bear in accordance with the requirements of the CBRC on the administration of capital adequacy ratio of commercial banks.

The CBRC encourages commercial banks with relatively complex businesses and relatively high level of market risks to apply the rate of risk-adjusted returns to internal capital allocation and performance appraisal， and to achieve a proper balance between market risk level and profitability level throughout the bank and across all business operation departments.

PART THREE　MARKET RISK REGULATION

Article 33　Commercial banks shall submit to the CBRC financial and accounting statements， statistical reports and other reports relating to market risks as required. If a social intermediary institution is appointed to carry out audit on the nature and level of market risks and market risk management system， external audit reports shall also be submitted.

The market risk management policies and procedures of commercial banks shall be reported to the CBRC for record filing.

Article 34　Commercial banks shall timely report the following to the CBRC：

1. incurring of any heavy loss in excess of the market risk limit internally set by the bank；

2. impact on the market risk level of the bank and management conditions resulting from a major event in the domestic or international financial market that causes significant market volatility；

3. illegal acts in trading business； and

4. other major unexpected incidents.

Commercial banks shall formulate a market risk major event reporting system and report the same to the CBRC.

Article 35　The CBRC shall conduct on-site examination of the market risk management conditions of commercial banks regularly. The main particulars of such examination shall be：

1. the performance of duties of market risk management by the board of directors and the senior management；

2. the adequacy and implementation of market risk management policies and procedures；

3. the effectiveness in the identification， measurement， monitoring and control of market risks；

4. the reasonableness and stability of the assumptions and parameters used in the market risk management system；

5. the effectiveness of the market risk management system；

6. the effectiveness of market risk limit management；

7. the effectiveness of internal control of market risk；

8. the independence， accuracy and reliability of the bank‘s internal reports on market risks， and truthfulness and accuracy of the statements and reports relating to market risks submitted to CBRC；

9. the adequacy of market risk capital；

10. the professional knowledge and skills of the personnel in charge of market risk management and the performance of their duties； and

11. other matters regarding market risk management.

Article 36　In regard to issues of market risk management identified by the CBRC during regulation， a commercial bank shall submit a remedial proposal and adopt remedial measures within the stipulated time limit. The CBRC may give remedial proposals regarding the market risk management system of a commercial bank， including proposals for adjusting the methods， models， assumptions and parameters for measuring market risks.

Where a commercial bank fails to effectively adopt remedial measures within the stipulated time limit or whose market risk management system has serious defects， the CBRC has the right to adopt the following measu

res：

1. require the commercial bank to increase the frequency of submission of market risk reports；

2. require the commercial bank to provide additional related information；

3. require the commercial bank to appropriately reduce its market risk level through adjustment of asset portfolio and other means； and

4. relevant measures specified in the PRC， Banking Regulation Law and other laws， administrative regulations and departmental rules.

Article 37　Commercial banks shall disclose the quantitative and qualitative information of its market risk profile in accordance with the provisions of the CBRC on information disclosure. The information to be disclosed shall at least include the following：

1. the types and the overall level of market risks borne， and the position and level of each type of market risks；

2. the sensitivity analysis of the relevant market prices， such as impact of change in interest rates or exchange rates on the bank‘s returns， economic value or financial conditions；

3. the market risk management policies and procedures， including the general philosophy， policies， procedures and methods of risk management， the organizational structure of risk management， the market risk measurement methods and the parameters and assumptions used therein， the particulars of back testing and stress testing， and the methods of market risk control；

4. the status of market risk capital； and

5. a commercial bank that adopts internal models shall disclose the types and scopes of market risks calculated， the levels of overall market risk and different types of market risks calculated， the maximum， minimum， average and end-of-period values at risk during the reporting period， as well as the modelling techniques used， the parameters and assumptions used therein， the particulars of back testing and stress testing and the internal procedures for testing model accuracy.

PART FOUR　SUPPLEMENTARY PROVISIONS

Article 38　Other financial institutions such as policy banks， financial asset management companies， urban credit cooperatives， rural credit cooperatives， trust and investment companies， finance companies， finance leasing companies， automobile finance companies and postal savings institutions shall refer to these Guidelines.

Article 39　For State-owned commercial banks that have no board of directors， the management duties imposed by these Guidelines on the board of directors with respect to market risk management shall be performed by the business decision making organ.

Article 40　Foreign bank branches established in the People‘s Republic of China shall regularly submit market risk management reports to their head office pursuant to the market risk management policies and procedures formulated by their head office， and shall submit the relevant reports on market risks to the CBRC as required.

Article 41　An explanation of the terms specified in these Guidelines is provided in the Appendix of these Guidelines.

Article 42　The requirements of these Guidelines shall be satisfied no later than the end of 2007 in the case of State-owned commercial banks and commercial banks limited by shares， and no later than the end of 2008 in the case of urban commercial banks and other commercial banks.

Article 43　The CBRC shall be responsible for the interpretation of these Guidelines.

Article 44　These Guidelines shall be implemented as of 1 March 2005

PART ONE　GENERAL PROVISIONS

Article 1　These Procedures have been formulated in accordance with the Company Law， the Securities Law， the Administration of the Issuing and Trading of Shares Tentative Regulations and other relevant laws and administrative regulations in order to standardize the acts of repurchase of public shares by listed companies.

Article 2　For the purposes of these Procedures， the term “repurchase of public shares by listed companies” means the act whereby a listed company purchases its own public shares （hereafter， “shares”） and cancel such shares in accordance with the law in order to reduce its registered capital.

Article 3　To repurchase shares， a listed company shall submit record filing materials to the China Securities Regulatory Commission （hereafter， “CSRC”） in accordance with the provisions hereof.

Article 4　Share repurchase by a listed company shall be conducive to the sustainable development of the company and may not prejudice the lawful rights and interests of its shareholders and creditors.

The directors， supervisors and senior management personnel shall act in good faith with due diligence in share repurchase.

Article 5　When repurchasing shares， a listed company shall perform its information disclosure obligations in accordance with the provisions hereof.

The listed company and its directors shall guarantee that the information disclosed is truthful， accurate and complete without false record， misleading representation or major omission.

Article 6　The listed company shall engage an independent financial advisor and a law firm to issue professional opinions on the matters of share repurchase.

The aforementioned professional institutions shall act in good faith with due diligence， conduct due diligence investigation on the relevant matters of share repurchase， verify the record filing materials and guarantee the truthfulness， accuracy and completeness of the documents they issue.

Article 7　No one shall carry out insider trading， manipulate the trading prices of securities or engage in securities fraud through a listed company‘s share repurchase.

PART TWO　GENERAL PROVISIONS FOR SHARE REPURCHASE

Article 8　To repurchase shares， a listed company shall meet the following conditions：

（1） the shares of the company have been listed for at least one year；

（2） the company has not committed any illegal act in the most recent year；

（3） the listed company shall have the ability of continuing operation after the share repurchase；

（4） the equity distribution of the listed company following the share repurchase shall， in principle， meet the conditions for listing； if the company intends to terminate the listing and trading of its shares through share repurchase， it shall comply with the relevant provisions and obtain the approval of the stock exchange； and

（5） other conditions specified by the CSRC.

Article 9　Share repurchase by a listed company may be conducted by any of the following means：

（1） centralized price competition at the stock exchange；

（2） offer； or

（3） other means approved by the CSRC.

Article 10　The rights attached to the repurchased shares shall be lost on the date of ownership transfer to the special repurchase account of the listed company. The listed company shall deduct the number of the repurchased shares from its total share capital when calculating the relevant indicators.

Article 11　The listed company may not issue new shares during the period of share repurchase.

The listed company shall not repurchase

shares through centralized price competition during the five working days before disclosure of its annual report or interim report or disclosure of information having major impact on the share price.

Article 12　If， as a result of share repurchase by the listed company， the shares held or controlled by a shareholder exceeds 30% of the issued shares of that company， such shareholder shall not be obliged to perform the obligation of takeover by offer.

PART THREE　PROCEDURE AND INFORMATION DISCLOSURE OF SHARE REPURCHASE

Article 13　The board of directors of the listed company shall， within two working days after a resolution on share repurchase is adopted， announce the resolution and the share repurchase proposal and issue a notice of convening of a shareholders‘ general meeting.

The share repurchase proposal shall include at least the following contents：

（1） the purpose of the share repurchase；

（2） the share repurchase method；

（3） the price or price range and the pricing principle for the share repurchase；

（4） the class and number of shares to be repurchased and the percentage of the total share capital for which they account；

（5） the total amount and source of the funds to be used for the repurchase；

（6） the time period for the share repurchase；

（7） the anticipated change in the equity structure of the company following the repurchase； and

（8） an analysis by the management of the impact of the share repurchase on the operation， finance and future development of the company.

Article 14　The listed company shall， three days before convening the shareholders‘ general meeting， publish on the website of the stock exchange the names of the top ten shareholders of its public shares， the number of shares they hold and their shareholding percentage on the register of the company on the trading day immediately prior to the announcement of its share repurchase resolution by the board of directors and on the equity registration date of the shareholders’ general meeting.

Article 15　The independent financial advisor shall conduct due diligence investigation on the matters of share repurchase by the listed company， issue an independent financial advisor‘s report， and announce the report in the newspapers and periodicals designated by the CSRC five days prior to the convening of the shareholders’ general meeting.

The independent financial advisor‘s report shall include the following particulars：

（1） whether the company‘s share repurchase is in compliance with the provisions hereof；

（2） a statement on the necessity of the repurchase by taking into account such factors as the purpose of the share repurchase， share price performance， an analysis of the estimated value of the company， etc.；

（3） an analysis on the impact of the share repurchase on the day-to-day operation， profitability and debt repayment capability of the company to illustrate the feasibility of the repurchase plan， taking into account such factors as the funds required for the share repurchase， the source of such funds， etc.； and

（4） other matters that shall be stated.

Article 16　The shareholders‘ general meeting of the listed company shall vote on each of the following matters：

（1） the share repurchase method；

（2） the price or price range and the pricing principle for the share repurchase；

（3） the class， number and percentage of the shares to be repurchased；

（4） the total amount of funds to be used for the repurchase；

（5） the time period of the share repurchase；

（6） the authorization to the board of directors for the implementation of the repurchase plan； and

（7） other relevant matters.

When announcing the resolution of the shareholders‘ general meeting， the listed company shall state that “this repurchase

plan may only be implemented after record filing with the CSRC without objection”。

Article 17　A resolution on share repurchase of the shareholders‘ general meeting of the listed company must be adopted by two-thirds or more of the voting rights held by the shareholders attending the meeting.

Article 18　The listed company shall notify its creditors in accordance with the law after adopting a resolution on share repurchase.

Article 19　After notifying its creditors in accordance with the law， the listed company may submit its share repurchase record filing materials to the CSRC and copy such materials to the local agency of the CSRC at the place of the listed company.

Article 20　The share repurchase record filing materials of the listed company shall include the following documents：

（1） an application for share repurchase；

（2） the resolution of the board of directors；

（3） the resolution of the shareholders‘ general meeting；

（4） the repurchase report of the listed company；

（5） the independent financial advisor‘s report；

（6） the legal opinion；

（7） the most recent audited financial and accounting reports of the listed company；

（8） the self-inspection report on the sale and purchase of the shares of the listed company by the directors， supervisors and senior management personnel of the listed company and the intermediaries participating in the repurchase during the six months prior to the adoption of the resolution by the shareholders‘ general meeting； and

（9） other documents specified by the CSRC.

Article 21　The repurchase report of the listed company shall include the following particulars：

（1） the matterslisted in the share repurchase proposal under Article 13 hereof；

（2） a statement on whether the directors， supervisors and senior management personnel of the listed company sold or purchased the shares of the listed company during the six months prior to the announcement of the resolution on repurchase of the shareholders‘ general meeting and whether they have， independently or jointly with other parties， engaged in insider trading or market manipulation；

（3） the conclusive opinion issued by the independent financial advisor on the share repurchase；

（4） the conclusive opinion issued by the law firm on the share repurchase； and

（5） other matters that shall be stated.

If the share repurchase is conducted by means of an offer， the method and procedure for preliminary acceptance of the offer by the shareholders， the method and procedure for withdrawal of preliminary acceptance of the offer by the shareholders， and the name and contact details of the securities company that is entrusted by the shareholders with matters such as making and withdrawal of preliminary acceptance， settlement， transfer of ownership and registration of the repurchase by offer shall also be disclosed.

Article 22　The legal opinion issued by a law firm on the share repurchase of the listed company shall include the following particulars：

（1） whether the share repurchase of the company meets the conditions stipulated herein；

（2） whether the company has completed the statutory procedures for the share repurchase； where the share repurchase involves the approval of other competent authorities， whether such approval has been obtained；

（3） whether the company has performed the relevant information disclosure obligations in connection with the share repurchase in accordance with the provisions hereof；

（4） whether the source of funds of the company for the share repurchase is in compliance with laws and regulations； and

（5） other matters that shall be stated.

Article 23　If the CSRC has not raised any objection within 10 working days of acceptance of the share repurchase record filing materials of the lis

ted company， the listed company may implement the repurchase plan.

If the share repurchase is conducted by means of centralized price competition， the listed company shall announce the repurchase report within five working days of receipt of the no-objection letter from the CSRC. If the repurchase is conducted by means of an offer， the listed company shall announce the repurchase within two working days of receipt of the no-objection letter and announce the repurchase report before implementing the repurchase plan.

The listed company shall， at the time of announcement of the repurchase report， announce the legal opinion together.

Article 24　The listed company shall， before implementing the repurchase plan， open with the securities registration and clearing institution a special repurchase account monitored by the stock exchange. Such account may only be used in repurchasing the shares of the company. The repurchased shares shall be locked and may not be sold.

Article 25　The listed company shall implement the repurchase plan within the validity of the repurchase period.

If the listed company fails to implement the repurchase plan three months before the expiration of the repurchase period， the board of directors shall make an announcement of the reasons therefor.

Article 26　If the repurchase period has expired or the implementation of the repurchase plan has been completed， the company shall stop the repurchase， cancel the special repurchase account， make an announcement of the change in the shares of the company within two working days， and shall cancel the repurchased shares in accordance with the law within ten days and complete the procedures for change in industry and commercial registration.

PART FOUR： SPECIAL PROVISIONS FOR SHARE REPURCHASE BY WAY OF CENTRALIZED PRICE COMPETITION

Article 27　Listed companies shall， in accordance with the relevant provisions of the stock exchange and the securities registration and clearing institution， entrust a securities company with securities brokerage business qualification to handle the relevant matters of share repurchase.

Article 28　During the period of share repurchase， the listed company shall， within the first three trading days of each month， announce the progress of the repurchase as at the end of the preceding month， including the total number of shares repurchased， the highest and lowest purchase prices and the total amount paid.

Whenever the shares repurchased by the listed company by way of centralized price competition increases by 1% in the percentage of the total share capital of the listed company， the listed company shall make an announcement within two trading days of the occurrence thereof.

Article 29　If the repurchase period has expired or the implementation of the repurchase plan has been completed， the listed company shall disclose in the share change report the total number of shares repurchased， the highest and lowest purchase prices and the total amount paid.

PART FIVE　SPECIAL PROVISIONS FOR SHARE REPURCHASE BY WAY OF OFFER

Article 30　If a listed company repurchases shares by way of an offer， the offer price may not be lower than the arithmetic mean of the daily weighted average price of that class of shares in the 30 trading days prior to the announcement of the repurchase report.

Article 31　If the listed company repurchases shares by way of an offer， it shall， at the same time of announcement of the repurchase report， deposit the total funds required for the repurchase into the bank account designated by the securities registration and clearing institution.

The offer period may not be less than 30 days or more than 60 days.

Article 32　If the listed company repurchases shares by way of an offer and the number of shares tendered by shareholders during preliminary acceptance is greater than the number o

f shares proposed to be repurchased， the listed company shall repurchase the shares tendered by the shareholders during preliminary acceptance in the same proportion. If the number of shares tendered by shareholders during preliminary acceptance is less than the number of shares proposed to be repurchased， the listed company shall repurchase all of the shares tendered by shareholders during preliminary acceptance.

Article 33　If a listed company repurchases domestically listed foreign shares by way of an offer， it shall comply with the relevant provisions of the business rules of the stock exchange and the securities registration and clearing institution.

PART SIX　REGULATORY MEASURES AND LEGAL LIABILITY

Article 34　If a listed company fails to carry out record filing in accordance with the provisions hereof， the CSRC has the power to demand suspension or termination of its share repurchase activities， and shall impose penalty on the company and its relevant responsible persons in accordance with the law.

Article 35　If the listed company makes any false record， misleading representation or major omission in the share repurchase， the CSRC shall order rectification and impose penalty on the company and its relevant responsible persons in accordance with the law.

Article 36　If anyone engages in fraud， market manipulation or insider trading through share repurchase by listed companies， the CSRC shall impose penalty in accordance with the law. If the case constitutes a criminal offence， it shall be handed over to the judicial authority for investigation and handling in accordance with the law.

Article 37　If a relevant professional institution that issues opinion on the share repurchase by a listed company fails to perform its due diligence obligations， and the professional opinion issued by it contains false record， misleading representation or major omission， the CSRC shall adopt such measures as regulatory discussion， issuance of warning letter and order of rectification on the relevant professional institution and the signatories. If the case is serious， the CSRC may suspend or revoke their business qualification.

PART SEVEN　SUPPLEMENTARY PROVISIONS

Article 38　These Procedures shall be effective as of the date of promulgation

Caishui [2005] No. 35

Ref no： 3230/2005.03.28

（Issued by the Ministry of Finance and State Administration of Taxation on 28 March 2005 and effective as of 1 July 2005.）

To the finance departments （bureaux） and local taxation bureaux of all provinces， autonomous regions， municipalities directly under the central government and municipalities with independent development plans：

To adapt to the remuneration system reform in enterprises （including domestic enterprises， foreign-invested enterprises and establishments set up by foreign enterprises in China） and strengthen the levy and administration of individual income tax， we hereby issue the following circular on issues relevant to the levy of individual income tax on income derived from enterprise stock option scheme in which the employees （including individuals with or without residence in China） participate：

1. Issues relevant to the levy of tax on income derived from stock option of employees

In accordance with the relevant provisions of the PRC， Individual Income Tax Law and its implementing regulations， individual income tax shall be levied on income derived from stock option granted employees by enterprises that operate stock option scheme.

The term “employee stock option” （Stock Option） refers to the right granted by a listed company to employees of the company and employees of the enterprises in which the company owns a controlling share according to the stipulated procedure. Such right allows authorized employees to purchase a fixed quantity of shares of the company at a specific price on a future date.

The term “specific price” mentioned above shall be referred to as “the grant price” or “the strike price”， namely the price at which stocks may be purchased under Stock Option scheme. Normally， it is the market price or the discounted price thereof on the grant date， or it may be a price agreed as per the predetermined calculation method. The “grant date”， also known as “the authorization date”， refers to the date on which the company grants the aforementioned right to its employees. “Exercise of option”， also known as “execution”， refers to the process during which the employees choose and purchase the stocks according to the Stock Option scheme. The day on which the employees exercise the aforementioned right shall be the “exercise date”， also known as “the subscription date”。

2. Recognition of the nature of income derived from Stock Options and the detailed provisions on levy of tax

（1） When an employee accepts Stock Option granted by the enterprise that implements Stock Option scheme， no taxable income shall be levied in general， unless stated otherwise.

（2） When an employee exercises his option， if the actual purchase price of the stock from the enterprise （the strike price） is lower than the fair market price of the stock on the exercise date （here and hereinafter refers to the closing price of the stock on the said date）， and the difference is the work-related income obtained due to the employee‘s performance and business results in the enterprise， individual income tax shall be levied according to the provisions applicable to “wage and salary income”。

Where the employee transfers his Stock Options prior to the exercise date in special circumstances， individual income tax shall be levied on the net income from the transfer of Stock Options as wage and salary income.

The taxable amount of wage and salary income during the period in which the employee exercises his Stock Options shall be calculated as per the following formula：

The taxable amount of the wage and salary income in the form of Stock Option = （market price per share – strike price per share paid by the employee to obtain the said Stock Option） x quantit

y of stocks

（3） Where an employee transfers his stocks after exercising his option at a higher price than the fair market price on the subscription date， and the difference is the proceeds from the transfer of negotiable securities such as shares on the secondary stock market， individual income tax shall be levied according to the provisions applicable to “income from transfer of property”。

（4） The income received by the employee from the distribution of profit after enterprise tax as a result of equity ownership shall be subject to individual income tax in accordance with the provisions applicable to “income from interest， dividends and bonus ”。

3. Classification of wage and salary income sourced from China and overseas

If， pursuant to the relevant provisions of the State Administration of Taxation， Issues Relevant to the Determination of Tax Liability of Individuals Without Domicile in China for Wage and Salary Income Received in the Form of Negotiable Securities Circular （Guoshuihan [2000] No. 190）， there is a need to determine the wage and salary income received by an employee from his participation in the enterprise‘s Stock Option scheme are from domestic or foreign source， the calculation shall be based on the percentage of working months of the employee in China and abroad to obtain the aforementioned income.

4. Calculation of taxable income

（1） Calculation of taxable income derived from the subscription of stock （Option Exercise Income）。 If the income received by an employee in China from his participation in a Stock Option scheme shall be subject to tax as wage and salary income according to this Circular， such income in the form of Stock Option may be distinguished from other wage and salary income in that month， and the taxable income for the month shall calculated separately according to the following formula：

Taxable amount = （Taxable wage and salary income in the form of Stock Option／stipulated number of months × applicable tax rate – quick calculation deduction factor） × stipulated number of months

The “stipulated number of months” in the formula of the preceding paragraph refers to the number of months in which the employee works within the territory of China to obtain his wage or salary income in the form of Stock Option. If the period is longer than 12 months， it shall be calculated as 12 months. The applicable tax rate and quick calculation deduction factor in the formula shall be determined by matching the quotient from dividing the taxable amount of wages and salaries in the form of Stock Option by the stipulated number of months to the tax rate table appended to the State Administration of Taxation， Printing and Distribution of Circular （Guoshuifa [1994] No. 89）。

（2） Calculation of tax amount on the income derived from transfer （sale） of stocks. The income received by an employee from the transfer of negotiable securities such as stocks shall be exempted from individual income tax according to the provisions of existing tax laws and policies. Namely， no individual income tax shall be levied for the time being on the income received by an individual from the transfer of stocks issued by domestic listed companies after the exercise of his options. The amount of taxable income and the amount of tax payable for income received by an individual from the transfer of stocks issued by overseas listed companies shall be calculated according to the provisions of tax laws， and the tax thereon shall be paid according to law.

（3） Calculation of tax on income from participation in the distribution of after-tax profit. Tax on income received by an employee in the form of dividend and/or bonus from participation in distribution of after-tax profit as a result of equity ownership shall be calculated on the full amount according to the stipulated tax rate， except where there is tax exemption or reduction under the relevant p

rovisions.

5. Levy and administration

（1） Withholding agents. Enterprises in China that operate Stock Option schemes shall be the withholding agent for individual income tax， and shall fulfil the obligations for withholding and making payment of individual income tax according to the provisions of tax laws.

（2） Filing of tax returns and paying tax of one‘s own accord. Where an employee receives wage and salary income in the form of Stock Option from two or more sources and he does not have a withholding agent， such individual shall be obliged to file tax returns and pay tax himself within the period for tax filing and payment as stipulated in the individual income tax law.

（3） Submission of relevant information. Enterprises in China that operate Stock Option schemes shall， prior to the implementation of the Stock Option scheme， submit such information as their Stock Option scheme or implementation plan， Stock Option agreement and notice of authorization to the competent tax authority； and shall， prior to the exercise of Stock Options by their employees， submit the Stock Option exercise notice and option exercise adjustment notice to the competent tax authority.

（4） When filing tax returns or withholding and making tax payment， withholding agents and individuals that file tax returns themselves shall submit information on the Stock Options they accepted or transferred as well as their subscription of stocks （including type， quantity， grant price， exercise price， market price， transfer price， etc.） to the competent tax authority within the period for filing tax returns stipulated in tax laws.

（5） Penalty. Where an enterprise that operates Stock Option scheme or an employee that files tax returns by himself and that obtains taxable income from Stock Option scheme fails to submit the relevant statements and information specified above and fails to fulfil its/his obligation of filing tax returns or withholding tax， the matter shall be handled according to the relevant provisions of the PRC， Administration of the Levy and Collection of Taxes Law and its implementing rules.

6. Time of implementation

This Circular shall be implemented as of 1 July 2005. In case of any discrepancy between the provisions of the State Administration of Taxation， Questions Concerning the Levy of Individual Income Tax on Discounts and Subsidies Granted by Employers to Individuals Who Subscribe for Negotiable Securities Such As Shares Circular （Guoshuifa [1998] No.9） and those of this Circular， the provisions hereof shall prevail

（Jointly promulgated by the China National Tourism Administration and the Ministry of Commerce on 12 June 2003 and effective 30 days after the date of promulgation.）

Article 1　These Provisions are formulated in accordance with the relevant laws on foreign-invested enterprises in China， the Administration of Travel Agencies Regulations and other relevant regulations， in order to adapt to the new situation in regards to China’s accession to the World Trade Organization， to further open up tourism industry to the outside world and to promote the development of travel agencies.

　　Article 2　These Provisions shall apply to foreign-controlled and wholly foreign-owned travel agencies established in the People’s Republic of China during the transition period prior to the specified time limit for China to carry out its commitments to the accession to the World Trade Organization.

　　Article 3　The overseas investor（s） of a foreign-controlled travel agency shall fulfil the following criteria：

　　1. be a travel agency or an enterprise that mainly engages in tourism business；

　　2. has an annual gross volume of tourism business of US$40 million or more；

　　3. be a member of the tourism association of its own country （or region）；

　　4. has a good international reputation and advanced experience in managing a travel agency； and

　　5. abide by Chinese laws and the relevant Chinese regulations on tourism.

　　Article 4　The overseas investor（s） of a wholly foreign-owned travel agency shall， in addition to fulfilling the criteria stipulated in Paragraphs （1）， （3）， （4） and （5） of Article 3， have an annual gross volume of tourism business stipulated in Paragraph （2） of US$500 million or more.

　　Article 5　The Chinese investor（s） of a foreign-controlled travel agency shall fulfil the criteria stipulated in Article 29 of the Administration of Travel Agencies Regulations.

　　Article 6　Foreign-controlled and wholly foreign-owned travel agencies to be established shall fulfil the following criteria：

　　1. conform to the development plans for tourism；

　　2. conform to the requirements of the tourism market；

　　3. the investors shall fulfil the criteria stipulated in Articles 3， 4 and 5 mentioned above； and

　　4. have a registered capital of not less than Rmb 2.5 million.

　　Article 7　Each overseas investor applying to establish a foreign-controlled or wholly foreign-owned travel agency shall only be approved to establish one agency in general.

　　Article 8　Applications for establishing foreign-controlled or wholly foreign-owned travel agencies shall be handled in accordance with the procedures for examination and approval of foreign-invested travel agencies as stipulated in the Administration of Travel Agencies Regulations.

　　Article 9　Foreign-controlled or wholly foreign-owned travel agencies shall not overtly or covertly engage in the business of overseas travel of Chinese citizens or travel of persons from other regions of China to Hong Kong and Macao Special Administrative Regions and Taiwan.

　　Article 10　The China National Tourism Administration and the Ministry of Commerce shall be responsible for the interpretation of these Provisions.

　　Article 11　These Provisions shall be effective 30 days after the date of promulgation.

In order to strengthen the administration of stock investment with insurance funds and safeguard against investment operational risks， and pursuant to the Administration of Stock Investment of Insurance Institutional Investors Tentative Procedures （“Tentative Procedures”）， Guidelines for Custody of Stock Assets of Insurance Companies （Trial Implementation） （“Custody Guidelines”）， we hereby notify you of issues relating to stock investment by insurance institutional investors as follows：

1. Insurance companies shall， in accordance with the special characteristics of funds of property and life insurance， formulate stock investment strategy plans and submit an application for engaging in stock investment business to the China Insurance Regulatory Commission.

2. Stock investment by insurance institutional investors shall comply with the following provisions on ratios：

（1） the balance of stock investments by insurance institutional investors in traditional insurance products shall be calculated at cost price， and may not exceed 5% of the assets after the assets of investment-linked insurance products and universal insurance products are deducted from the total assets of the company at the end of the previous year. The proportion of stock investments in investment-related insurance products calculated at cost price may be 100% of the assets in the account of such products at maximum. The proportion of stock investments in universal insurance products calculated at cost price may not exceed 80% of the assets in the account of such products；

（2） the cost balance of insurance institutional investors investing in a listed company with a circulating share capital of less than 100 million shares may not exceed 20% of the company‘s stock assets that may be used for investment （here and hereinafter， including investment-linked insurance and universal insurance products）；

（3） the cost balance of investment in the traded shares of the same listed company by insurance institutional investors may not exceed 5% of the stock assets that may be used for investment of such listed company；

（4） the quantity of the traded stocks of the same listed company invested in by an insurance institutional investor may not exceed 10% of the circulating share capital or 5% of the total share capital of the listed company；

（5） convertible bonds that are converted into shares of a listed company held by an insurance institutional investor shall be transferred to the stock investment securities account of the company to be included in the calculation of proportion of stock investment； and

（6） an insurance institutional investor that entrusts an insurance asset management company with stock investment shall specify in the entrustment contract the asset base and investment proportion for stock investment.

3. Insurance institutional investors shall， in accordance with the Use of Insurance Funds Risk Control Guidelines （Trial Implementation）， focus on long-term and steady investment， establish a truly feasible risk control system， and implement risk control over the entire process of stock investment to cover every risk point. Insurance institutional investors shall use risk control techniques and means to control stock investment risks.

4. Where there is a huge fluctuation in the market value of the stock assets of an insurance institutional investor and the loss exceeds 10% of the cost of the stock investment of the company or the profit exceeds 20% of the cost of the stock investment of the company， it shall submit a Report on Risk Control of Stock Investments to the China Insurance Regulatory Commission within three days. The Report shall include at least the following：

（1） market value o

f the stock assets and the details of fluctuation during the reporting period；

（2） risk tolerance index for stock investment， current status of risk tolerance， and details of implementation of risk control；

（3） risk assessment of stock assets；

（4） risk control measures for stock assets； and

（5） other matters deemed necessary to be reported.

5. Insurance institutional investors shall select custodians and securities business institutions in accordance with the principles of fairness， impartiality， and openness. An insurance institutional investor shall enter into a custody agreement with the head office of a commercial bank， and may not link the stock asset custodian business with the relevant businesses of the custodian.

6. Insurance institutional investors must open a new stock investment securities account. The application materials to be submitted to the China Insurance Regulatory Commission by insurance institutional investors shall， in addition to the particulars stipulated in Article 8 of the Tentative Procedures， include an Application for Securities Account and Application for Seat， and the product approval document （photocopy） in triplicate in case of investment-linked insurance and universal insurance products.

7. An insurance institutional investor shall， on the strength of the Securities Account Confirmation Letter issued by the Fund Use Supervision Department of the China Insurance Regulatory Commission， authorize the custodian to open a securities account with the China Securities Depository Clearing Corporation Limited （CSDCC）。

Insurance institutional investors may not carry out stock investments through the original securities account. Matters regarding the clearing of original securities accounts shall be announced separately.

8. Insurance institutional investors must designate a special bank account for stock investments， which is used for fund transfer to and from the special deposit account opened with the custodian. Transfer of funds for purchase in the primary market must be conducted through special deposit accounts.

9. Insurance asset management companies must carry out stock transactions of custody assets through their independent seat. In case of applications for exclusive seat for stock investment， the relevant procedures shall be handled with the securities exchange on the strength of the Seat Confirmation Letter issued by the Fund Use Supervision Department of the China Insurance Regulatory Commission.

Where an insurance institutional investor rents a seat of a securities business institution， such securities business institution must comply with Article 41 of the Tentative Procedures. The seat rented must not be linked to the seat of the securities business institution for its own account and other seats not for its own account.

10. Where an insurance institutional investor implements a system of full custody of assets， it shall entrust the custodian with the custody of all stocks， bank deposits， negotiable instruments of the central bank， government bonds， enterprise bonds， financial bonds and securities investment funds， and shall hand over the relevant securities accounts and fund accounts for management by the custodian.

11. Insurance institutional investors shall cooperate with securities exchanges， CSDCC， securities business institutions， custodians and relevant institutions in accomplishing technical integration in relation to relevant seats， securities accounts， transactions and settlement， and ensure that systems such as the computer room facilities， computer equipment， operating system software， database software and communication equipment operate safely and accurately and that information flow without obstruction.

12. Insurance institutional investors must strengthen education on legal system and professional ethics， abide by laws and regulations，

operate in accordance with regulations and accept supervision in accordance with the law. According to Article 25 of the Tentative Procedures， insurance institutional investors may not use stocks assets for transactions on credit， nor for granting loans or providing guarantees to others. If laws and regulations such as the Tentative Procedures and Custody Guidelines are violated， the China Insurance Regulatory Commission shall impose penalty in accordance with the relevant provisions in Article 145 of the PRC， Insurance Law

Guo Shui Han [2005] No. 130

The Local Taxation Bureau of Sichuan Province：

Your Request for Instructions for the Issue Concerning the Individual Income Tax on the Stock Right Withdrawn by A Taxpayer （No. 146 [2004] of the Local Taxation Bureau of Sichuan Province has been received. After deliberation， you are hereby given a reply as follows：

I. In accordance with the Individual Income Tax Law of the People’s Republic of China （hereinafter referred to as the IITL） and its implementing regulation as well as the Law of the People’s Republic of China on the Administration of Tax Collection （hereinafter referred to as the LATC）， if a stock right transfer contract has been fulfilled， in case the stock right modification has been registered and the income has been realized， the income obtained by the transferor from the transfer of stock right shall be subject to individual income tax according to law. After the completion of transfer， if the both parties concerned conclude and fulfill an agreement on canceling the former stock right transfer contract and taking back stock right ， their act is a second stock right transfer act， hence the individual income tax paid for the former transfer may not be refunded.

II. As for a stock right transfer contract incompletely fulfilled， in case the parties concerned stop fulfilling the former stock right transfer contract and the transferor takes back the already transferred stock right at the former price for the reason that an award on the cancellation of the stock right transfer contract and its supplementary agreement is made by the arbitration commission， considering that the stock transfer act has not been completely conducted， the income has not been completely realized and the proceeds of stock right will not exist with the cancellation of stock right transfer relationship， the taxpayer needn’t pay the individual income tax in accordance with the provisions of Individual Income Tax Law and the Law on Administration of Tax Revenue Collection as well as the principle of reasonableness of administrative act.

State Administration of Taxation

January 28， 2005

Cai Shui [2005] No. 11

Shanghai Municipal Financial Administration， Shanghai Municipal Administration of State Taxation， Shenzhen Municipal Financial Administration， Shenzhen Municipal office of State Taxation， Shanghai Stock Exchange， and Shenzhen Stock Exchange：

Upon the approval of the State Council， the stamp tax rate of securities （stock） transaction is decided to be adjusted from January 24， 2005. For those who deal in， inherit or donate the documentation of transfer of the stock right of A and B shares， both parties who sign the documentation shall pay stamp tax of the securities （stock） transaction according to the rate of l‰。

Please implement it accordingly.

the Ministry of Finance

the State Administration of Taxation

January 24， 2005

Assorts of stocks in stock market:

When you are buying stocks there are three different types that you may choose from: penny stocks, growth stocks and blue chip stocks.
Penny stocks are stocks from a company that has almost no chance of developing into a big company and the stocks are of very little monetary value.

Growth stocks are companies that have a high potential to achieve great success, but they can also be very risky investments because they not are well established.
The highest level of stock purchasing is buying blue chip stocks. These stocks are of companies that are very well established and have almost no chance of its’ stocks dropping drastically.

There is unprecedented interest in China’s stock market. This is not surprising given the astonishing growth rate of China’s economy in recent years.

There are three classes of Chinese shares:

A shares are the shares that denominated in RMB and listed on the Shanghai or Shenzhen stock exchanges

B shares are foreign-invested shares issued domestically by PRC’s companies; they are also known as RMB Special Shares

H shares are shares that traded in Hong Kong

The history and actuality of the china’s stock market:

The china’s stock market came into being in due form in 1990，taking the debut of the Shanghai Stock Exchange as a label.

In the history of china’s stock market, there’re seven sharp rise and drop, proving the fluctuate of the stock market:

1, from 1990/12/19 to 1992/11/16, the stock index hurricane from 100 points to 1429, then sharply dropped to 400 in five months.

2, from 1992/11/16 to 1994/7/29, 400 — 1536 — 333.

3, from 1994/7/29 to 1996/1/19, 333 — 1053 — 512.

4, from 1996/1/19 to 1999/5/17, 512 — 1510 — 1047

5, from 1999/5/17 to 2000/1/4 , 1047 — 1756 — 1361

6,from 2000/1/4 to 2004/9/13 , 1361 — 2245 — 1000

7,from 2004/9/13 to 2007/4/6 , 1000 — 3300

As you know, recent years, china’s stock market comes into a wondrous boom period. More and more people plunge into the stock market. One reason is that China’s middle class is expanding rapidly, but the state continues to provide negligible health and pension benefits for the elderly, which leads to high savings rates within the middle class; For various reasons, Chinese interest rates remain low, and will likely remain low for the near term. Thus, Chinese investors are encouraged to seek higher rates outside of traditional savings accounts and have easy access to credit. Also, there are limitations on foreign investments, making it difficult for individual investors to enter stock markets outside of China.

As a result, great bubble exists in china’s stock market recently. No wonder that many professional judge of the china’s stock market as “going crazy”.

The foreground of china’s stock market

About the foreground of china’s stock market, different people have different opinions. The pessimistic ones think that china’s stock market faces serious challenge in 2008

Five reasons cause Chinese stock market’s plunge in 2008.

(1), oversea cash outflow

(2), lack of enough cash to continue supporting the stock market

(3), fund redeem

(4), high CPI and real estate

(5), the recent natural disasters

However, there are also optimistic ones express confidence about the china’s stock market.

Guotaijun’an Securities has conducted a survey covering 372 investors, finding that nearly 90% of them believe no bear market will occur in 2008.

90% of the respondents feel optimistic about the conditions of A-stocks in 2008. 44.1% of them have strong faith in a continuous bull market, and 44.4% think it will enter box-concussion stage. Only 4.1% of the respondents express their worries of a bear market.

Let’s begin by noting there are already plenty of restrictions on personal freedoms when the consensus is that these restrictions somehow protect people from themselves, or they protect society as a whole. For example, where I live you can’t legally…

- Drive without a seatbelt
- Ride a motorcycle without a helmet
- Commit suicide
- Practice law, medicine, or other professions without a license
- Operate a motor vehicle while under the influence
- Gamble in most places
- Carry an Uzi down the street
- Buy dynamite
The list goes on, and that doesn’t even include the many restrictions on underage activities. So there is nothing unusual or unprecedented about legal restrictions on freedom when an argument can be made that it protects lives or property.

My argument against allowing individuals to invest in stocks is that unless you have insider knowledge, which is already illegal, your odds of beating the index averages are slim. It is nothing more than gambling.

The myth of stock investing is that a person who does more research has better results. But there is no science to support that view. Indeed, the person who understands the most about individual stock investing avoids them completely and invests in ETFs or index funds.

The problem with doing your own research on stocks is that you must rely on the information coming from the management of a company, and managers are generally misinformed or lying. Even the most seasoned investment professionals running mutual funds perform worse than the indexes on average. Brains and research can’t overcome the fact that much of your data is deliberately tainted at the source.

When people go to Vegas to gamble, they usually set some sort of limit for their losses. And they go with the full knowledge that winning is unlikely. It makes sense for that sort of activity to be legal, within limits, because it is viewed as entertainment and not investment. But if it were common for people to bet their retirement savings on Blackjack, you can be sure it would be illegal.

We don’t allow unlicensed people to practice law or medicine, sell real estate, or even build a house. It is entirely consistent to restrict the untrained from making risky stock investments.

I reiterate that this runs against my own libertarian philosophy. I would feel I had lost something important if I couldn’t invest in individual stocks. But it is also true that my net worth would be larger if I had never done it. And it would be larger still if I hadn’t allowed professionals to do it on my behalf.

If anyone comments to this post by saying, “I do my own research and I made money in the stock market,” it is proving my point. And if you don’t see why that proves my point that further proves my point.

The Shanghai Stock Exchange Index was 998.23 in June 2005 , which is the lowest point in the passed five years. It reached 6124.04 point, the highest point and more than six times increase , on  October 16th last year. Do you think it was crazy or unbelievable？ But it had bean really happened, happened in China the largest developing country . It’s believe that everything could happen in China. The decline of Chinese stock market is also the same thing. It have bean declined more than 60 percent in less than half a year, just like the increase, which wined the gold medal of the stock market in the world , too. It maybe called the China-specific .

I became a stocker one and half years ago, and I wined about twice of my money at first during the climbing days. But  now I had lost no less than 40 percent of my principal. Oh, my god that is almost half of my one year’s income. Maybe,I should be concern about one of the idioms earlier , which is ‘ Cherish life, away from drugs, away from stocks’.