Order No. 9 of the President of the People's Republic of China

The Law of the of the People's Republic of China on Securities Investment Funds, adopted on 28 October 2003 at the 5th Session of the Standing Committee of the 10th National People's Congress, is hereby promulgated and shall be effective from 1 June 2004.

Hu Jin Tao, President of the People's Republic of China

28 October 2003.

Adopted on 28 October 2003 at the 5th Session of the Standing Committee of the 10th National People's Congress.

Contents

CHAPTER 1. GENERAL PRINCIPLES

Article 1. This Law has been formulated to regulate the activities of securities investment funds, safeguard the lawful interests of investors and relevant parties and promote the healthy development of the securities investment funds and securities market.

Article 2. This Law shall be applicable to securities investment funds (hereinafter referred to as Funds), which raise funds through the public offering of Fund units, are managed by Fund managers, held in trust by Fund custodians and undertake securities investment activities in the form of asset portfolios within the territory of the People's Republic of China for the benefit of Fund unit holders. The Trust Law of the People's Republic of China, the Securities Law of the People's Republic of China and the provisions of other relevant laws and administrative regulations shall be applicable if an issue has not been provided for by this Law.

Article 3. The rights and obligations of Fund managers, Fund custodians and Fund unit holders shall be stipulated in Fund contracts in accordance with this Law.

Fund managers and Fund custodians shall discharge the duties entrusted upon them in accordance with this Law and the stipulations of the Fund contracts. Fund unit holders shall be entitled to the returns and shall bear risk in proportion to the Fund units that they hold.

Article 4. Engagement in securities investment funds activities shall abide by the principles of voluntariness, fairness and good faith and shall not undermine the interests of the State or the public.

Article 5. Fund contracts shall stipulate the operating method of the Fund. The closed-ended method, open-ended method or another method may be adopted as the operating method of a Fund.

A Fund which adopts the closed-ended operating method (hereinafter referred to as a Closed-ended Fund) shall refer to a Fund of which the authorised total Fund units shall remain unchanged during the contract term of the Fund and the Fund units of which may be traded in a stock exchange established in accordance with the law except that Fund unit holders are no entitled to apply for redemption.

A Fund which adopts the open-ended operating method (hereinafter referred to as an Open-ended Fund shall refer to a Fund of which the total Fund units are not fixed and the Fund units of which may be subscribed to or redeemed at the time and place stipulated in the Fund contract.

The offering, dealing, subscription and redemption of units of Funds which have adopted another operating method shall be specified separately by the State Council.

Article 6. Fund assets shall be independent from the assets owned by the Fund manager and Fund custodian. A Fund manager or Fund custodian may not include Fund assets in his own assets.

Assets and profits obtained by a Fund manager or a Fund custodian from the management, application or other circumstance of Fund assets shall be included in the Fund assets.

If a Fund manager or a Fund custodian is liquidated as a result of dissolution or cancellation in accordance with the law or of being declared bankrupt in accordance with the law, the Fund assets shall not form part of his liquidation assets. 

Article 7. Creditor's rights arising from any of the Fund assets may not be offset against the indebtedness arising from the assets owned by the Fund manager or Fund custodian. Creditor's rights or indebtedness in respect of the assets of different Funds shall not be offset against one another. 

Article 8. Any indebtedness borne otherwise than as a result of the Fund assets themselves shall not be enforceable against the Fund assets.

Article 9. When managing and applying Fund assets, a Fund managers and Fund custodian shall scrupulously carry out his responsibilities and perform his obligation to be honest, trustworthy, prudent and dutiful.

Fund practitioners shall obtain Fund practising qualifications in accordance with the law, abide by the law and administrative rules and strictly observe professional ethics and the codes of conduct.

Article 10. Fund managers, Fund custodians and organisations selling Fund units may form a trade association for the purposes of strengthening self-discipline within the industry, coordinating industry relations, providing services to the industry and promoting the development of the industry.

Article 11. Activities of securities investment funds shall be supervised and regulated by the securities regulatory body of the State Council in accordance with the law.

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CHAPTER 2. FUND MANAGERS

Article 12. The role of Fund manager shall be assumed by a Fund management company established in accordance with the law.

Those assuming the role of Fund managers shall be authorised by the securities regulatory body of the State Council.

Article 13. In order for a Fund management company to be established, the following conditions shall be satisfied and the approval of the securities regulatory body of the State Council shall be obtained:

1. it has articles of association which comply with the provisions of this Law and the Company Law of the People's Republic of China;

2. its registered capital is not less than RMB 100 million which shall be paid up in cash;

3. its major shareholder has achieved relatively good business results and has a good social standing in the operation of securities, securities investment consulting, management of trust assets or other financial asset management business, has no record of infringement of the law in the past three years and its registered capital is not less than RMB 300 million;

4. the number of staff who have obtained Fund practising qualifications attains the statutory requirement;

5. it has business premises, safety prevention facilities and other facilities related to Fund management business which meet requirements;

6. it has a sound internal compliance and supervision system and risk control system; and

7. other conditions specified by laws or administrative regulations or specified by the securities regulatory body of the State Council.

Article 14. The securities regulatory body of the State Council shall within six months from the acceptance of an application for the establishment of a fund management company decide whether to grant approval in accordance with the conditions set out in Article 13 of this Law and the principle of prudent supervision, and notify the applicant. If approval is not granted, the reasons must be explained.

If a Fund management company establishes a branch, amends its articles of association or alters another material matter, it shall report the same to the securities regulatory body of the State Council for approval. The securities regulatory body of the State Council shall decide whether to grant approval within sixty days from the acceptance of the application. If approval is not granted, the reasons must be explained.

Article 15. The following persons may not be employed by Fund managers as Fund practitioners:

1. those who have been convicted and sentenced for crimes of corruption, dereliction of duty, property violation or disrupting the order of the socialist market economy;

2. directors, supervisors, factory managers, managers and other senior management staff who were personally responsible for the bankruptcy and liquidation of the companies or enterprises for which they worked due to poor management, or for the revocation of the business licence of such entities for breach of law, before five years have lapsed since the date of such bankruptcy and liquidation or revocation of the business licence;

3. those who have relatively large personal debts which have fallen due and have not been repaid;

4. industry practitioners of Fund managers, Fund custodians, stock exchanges, securities companies, securities registration and clearing institution, futures exchanges, futures brokerage companies and other institutions and personnel of government organisations who have been dismissed for illegal conduct;

5. lawyers, registered accountants, or industry practitioners of asset valuation and verification institutions or investment consultants whose practising certificates have been cancelled or whose qualifications have been removed for illegal conduct; and

6. other persons in respect of whom laws or administrative regulations specify that they may not engage in the Fund industry.

Article 16. The managers and other senior management staff of a Fund manager shall be familiar with the laws and administrative regulations on securities investment and possess the Fund practising qualifications and more than three years of working experience relevant to their current positions.

Article 17. The appointment and replacement of managers and other senior management staff of a Fund manager shall be reported to the securities regulatory body of the State Council for ratification in accordance with the conditions for holding the position specified in this Law and other laws and administrative regulations.

Article 18. The directors, supervisors, managers and other practitioners of Fund managers may not take up any position in a Fund custodian or another Fund manager, nor may they engage in any activity which prejudices the Fund assets or the interests and benefits of Fund unit holders.

Article 19. Fund managers shall perform the following duties:

1. raise funds in accordance with the law, handle or entrust other organisations recognised by the securities regulatory body of the State Council with the handling of the sales, subscription, redemption and registration of Fund units;

2. attend to the procedures for filing the Fund for the record;

3. carry out separate administration, separate bookkeeping and securities investment for the different Funds managed by them;

4. determine the return allocation plan in accordance with the stipulations of the Fund contracts and timely distribute returns to Fund unit holders; 

5. carry out account audit and prepare accounting and financial reports for the Funds;

6. prepare interim and annual Fund reports;

7. calculate and announce the net asset value of the Funds, determine the subscription and redemption prices of Fund units;

8. handle information disclosure in relation to the Fund asset management activities;

9. convene the general meeting of Fund unit holders;

10. maintain records, accounting books, reports and other relevant information on the Fund asset management activities;

11. exercise in the name of a Fund manager for and on behalf of Fund unit holders the right to sue and pursue other legal action; and

12. other duties specified by the securities regulatory body of the State Council.

Article 20. Fund managers may not:

1. mix their own assets or assets of others with Fund assets to engage in securities investment;

2. treat different Fund assets placed under their administration unfairly;

3. use Fund assets for the advantage of persons other than Fund unit holders;

4. promise Fund unit holders a return or assume losses in breach of regulations; or

5. commit another act which is prohibited by the relevant provisions of laws or administrative regulations or as specified by the securities regulatory body of the State Council.

Article 21. The securities regulatory body of the State Council shall order rectification or cancel the Fund management qualifications pursuant to its powers if a Fund manager is in any of the following circumstances:

1. it has committed a material violation of a law or regulation;

2. it no longer satisfies the conditions specified in Article 13 of this Law; or

3. in other circumstances specified by laws or administrative regulations.

Article 22. The duties of a Fund manager shall terminate in any of the following circumstances:

1. its qualification as a Fund manager is revoked in accordance with the law;

2. it is dismissed by the general meeting of Fund unit holders; 

3. it is dissolved in accordance with the law, cancelled in accordance with the law or declared bankrupt in accordance with the law; or

4. in other circumstances stipulated in the Fund contract.

Article 23. If the duties of a Fund manager are terminated, the Fund unit holders shall elect a new Fund manager within six months. The securities regulatory body of the State Council shall appoint a provisional Fund manager before the new Fund manager comes into existence.

If the duties of a Fund manager are terminated, it shall properly maintain information relating to the Fund management business and timely complete the procedures for the transfer of the Fund management business. The new Fund manager or the provisional Fund manager shall take over in a timely manner.

Article 24. If the duties of a Fund manager are terminated, it shall in accordance with the requirements appoint an accounting firm to audit the Fund assets. The Fund manager shall make a public announcement of the audit results and report the same to the securities regulatory body of the State Council for the record.

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CHAPTER 3. FUND CUSTODIANS

Article 25. The role of Fund custodian shall be assumed by a commercial bank which is established and has obtained Fund custodian qualifications in accordance with the law.

Article 26. In order for a Fund custodian company to be established, the following conditions shall be satisfied and the approval of the securities regulatory body of the State Council shall be obtained:

1. its net assets and capital adequacy ratio satisfy the relevant regulations;

2. it has established a dedicated Fund custody department;

3. the number of staff who have obtained Fund practising qualifications attains the statutory number;

4. it possesses the conditions to keep Fund assets in safe custody;

5. it has a safe and efficient settlement and delivery system;

6. it has business premises, safety prevention facilities and other facilities relating to Fund custody business which satisfy the requirements;

7. it has a sound internal verification and monitoring system and risk control system; and

8. other conditions specified by laws or administrative regulations or specified by the securities regulatory body of the State Council.

Article 27. The provisions of Articles 15 and 18 shall be applicable to practitioners of the dedicated Fund custody department established by a Fund custodian.

The provisions of Articles 16 and 17 shall be applicable to the manager and senior management staff of the dedicated Fund custody department established by a Fund custodian.

Article 28. A Fund custodian and a Fund manager may not be the same person and they may not contribute capital to, or hold shares in, each other.

Article 29. A Fund custodian shall perform the following duties:

1. keep Fund assets in safe custody;

2. open a capital account and a securities account for the Fund assets in accordance with regulations;

3. establish separate accounts for the different Fund assets in its custody and ensure the integrity and independence of the Fund assets;

4. maintain records, accounting books, reports and other relevant information on the Fund custodian activities;

5. handle settlement and delivery in a timely manner pursuant to the investment instructions of Fund managers in accordance with the stipulations of the Fund contract;

6. handle information disclosure in relation to the Fund custodian business activities;

7. issue opinions on the financial statements of Funds and the interim and annual Fund reports;

8. review and examine the net asset value calculated by the Fund manager and the purchase and redemption prices of Fund units;

9. convene general meetings of Fund unit holders in accordance with regulations;

10. supervise the investment operation of Fund managers in accordance with regulations; and

11. other duties specified by the securities regulatory body of the State Council.

Article 30. When a Fund custodian discovers that the investment instructions of a Fund manager violate laws, administrative regulations and other relevant regulations, or breach the stipulations of the Fund contract, it shall refuse to carry out the instructions and shall immediately notify the Fund manager and report the matter to the securities regulatory body of the State Council in a timely manner.

When a Fund custodian discovers that investment instructions of a Fund manager which have taken effect in accordance with the transaction procedure violate laws, administrative regulations and other relevant regulations, or breach the stipulations of the Fund contract, it shall immediately notify the Fund manager and report the matter to the securities regulatory body of the State Council in a timely manner.

Article 31. The provisions of Article 20 of this Law shall be applicable to Fund custodians.

Article 32. The securities regulatory body of the State Council and the banking regulatory body of the State Council shall order rectification or cancel the Fund custodian qualifications pursuant to its powers if a Fund custodian is in any of the following circumstances:

1. it has committed a material violation of a law or regulation;

2. it no longer satisfies the conditions specified in Article 26 of this Law; or

3. in other circumstances specified by laws or administrative regulations.

4. Article 33. The duties of a Fund custodian shall terminate in any of the following circumstances:

5. its qualification as a Fund custodian is revoked in accordance with the law;

6. it is dismissed by the general meeting of Fund unit holders; 

7. it is dissolved in accordance with the law, cancelled in accordance with the law or declared bankrupt in accordance with the law; or

8. in other circumstances stipulated in the Fund contract.

Article 24. If the duties of a Fund manager are terminated, it shall in accordance with the requirements appoint an accounting firm to audit the Fund assets. The Fund manager shall make a public announcement of the audit results and file the same with the securities regulatory body of the State Council.

Article 34. If the duties of a Fund custodian are terminated, the Fund unit holders shall elect a new Fund custodian within six months. The securities regulatory body of the State Council shall appoint a provisional Fund custodian before the new Fund custodian comes into existence.

If the duties of a Fund custodian are terminated, it shall properly maintain information relating to the Fund custodian business and timely complete the procedures for the transfer of the Fund custodian business. The new Fund custodian or the provisional Fund custodian shall take over in a timely manner.

Article 35. If the duties of a Fund custodian are terminated, it shall in accordance with the requirements appoint an accounting firm to audit the Fund assets. The Fund custodian shall make a public announcement of the audit results and report the same to the securities regulatory body of the State Council for the record.

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CHAPTER 4. RAISING OF FUNDS

Article 36. When Fund managers offer Fund units and raise a Fund according to this Law, they shall submit the following documents to the securities regulatory body of the State Council for examination and approval by the securities regulatory body of the State Council:

1. the application report;

2. the draft Fund contract;

3. the draft Fund custody agreement;

4. the draft prospectus;

5. the documentary evidence for the qualifications of the Fund manager and the Fund custodian;

6. the financial reports of the Fund manager and the Fund custodian of the past three years or since their establishment audited by an accounting firm;

7. a legal opinion issued by a law firm; and

8. other documentation to be submitted as specified by the securities regulatory body of the State Council.

Article 37. The Fund contract shall include the following contents:

1. the purpose for which the Fund is raised and the name of the Fund;
   the names and addresses of the Fund manager and the Fund custodian;

2. the operating method of the Fund;

3. the total number of Fund units and term of the Fund contract in case of a Closed-ended Fund, and the minimum number of Fund units to be raised in case of an Open-ended Fund;

4. the principles for determining the date, price and fees for the Fund units offer;

5. the rights and obligations of Fund unit holders, the Fund manager and Fund custodian;

6. the procedure and rules for the convening of, and the deliberation of issues and the casting of votes at, general meetings of Fund unit holders;

7. the procedure, time, venue and method for the calculation of fees, for the offering, dealing in, subscription and redemption of Fund units, and the time and method for the payment of redemption amounts;

8. the principles and the enforcement method for distributing the returns of the Fund;

9. the method for the drawing and payment and the ratio of the management fees and the custodian fees which form the remuneration of the Fund manager and Fund custodian,

10. the method for the drawing and payment of other fees related to the management and application of the Fund assets;

11. the investment direction and investment restrictions of the Fund assets;

12. the method for calculating and the method for the public announcement of the net asset value of the Fund;

13. a method for dealing with the matter in case the Fund raised fails to meet the statutory requirements;

14. the grounds and procedure for dissolving and terminating the Fund contract and the method for liquidating the Fund assets;

15. the dispute resolution method; and

16. other matters agreed by the parties.

Article 38. The Fund prospectus shall include the following contents:

1. the name and approval date of the approval document for the Fund raising application;

2. a brief introduction of the Fund manager and the Fund custodian;

3. a summary of the contents of the Fund contract and the Fund custodian agreement;

4. the date, price, fees and term of the Fund units offer;

5. the method of offering and the names of the offering and registration organisations of the Fund units;

6. the names and addresses of the law firm which issues the legal opinion and the accounting firm which audits the Fund assets;

7. the method for drawing and paying and the ratio of the remuneration of the Fund manager and Fund custodian and other relevant fees;

8. a risk warning statement; and

9. other contents specified by the securities regulatory body of the State Council.

Article 39. The securities regulatory body of the State Council shall within six months from the date on which a Fund raising application is accepted decide whether or not to grant approval in accordance with laws and administrative regulations and the provisions of the securities regulatory body of the State Council and the principle of prudent supervision, and notify the applicant. If approval is not granted, the reasons must be explained.

Article 40. Fund units may only be offered for sale after the Fund raising application has been approved.

Article 41. The offering of Fund units shall be handled by the Fund manager. The Fund manager may appoint other organisations recognised by the securities regulatory body of the State Council to handle the matter on its behalf.

Article 42. The Fund manager shall publish the Fund prospectus, the Fund contract and other relevant documents three days before the offering of the Fund units.

The documents specified in the foregoing paragraph shall be truthful, accurate and complete.

The marketing and promotional activities undertaken for the Fund raising shall comply with the provisions of the relevant laws and administrative regulations. There may not be such conduct as set out in Article 64 hereof.

Article 43. The Fund manager shall carry out Fund raising within six months from the receipt of the approval document. If Fund raising commences after the six-month period has expired and the matters originally approved have not changed substantially, the matter shall be reported to the securities regulatory body of the State Council for the record. If there has been a substantial change, a new application shall be filed with the securities regulatory body of the State Council.

Fund raising shall not exceed the Fund raising term approved by the securities regulatory body of the State Council. The Fund raising term shall commence from the date on which Fund units are offered.

Article 44. Upon the expiry of the Fund raising term, if the total number of Fund units raised by a Closed-ended Fund attains 80% or more of the approved scope or the total number of Fund units raised by an Open-ended Fund exceeds the minimum number of Fund units approved by the securities regulatory body of the State Council, and the total number of Fund unit holders meets the regulations of the securities regulatory body of the State Council, then the Fund manager shall within 10 days from the expiry of the Fund raising term, appoint a statutory capital contribution verification organisation to verify the capital, submit the capital verification report to the securities regulatory body of the State Council within 10 days from receipt of the same, complete the procedure for filing the Fund for the record and make a public announcement.

Article 45. The funds raised during the Fund raising term shall be deposited in a special account and nobody may use the funds before the Fund raising activity has ended.

Article 46. The Fund contract is concluded when an investor pays the amount for the Fund units he has subscribed for. The Fund contract shall enter into effect when the Fund manager completes the procedure for filing the Fund for the record with the securities regulatory body of the State Council in accordance with Article 44 of this Law.

1. If upon expiry of the Fund raising term the conditions under Article 44 cannot be satisfied, the Fund manager shall assume the following responsibilities:

2. assume the liabilities and expenses arising from the fundraising activity with its own assets; and

3. return monies paid by the investors within 30 days from the expiry of the Fund raising term together with an amount equivalent to bank interest payable on a deposit of the amount of the monies over the same period.

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CHAPTER 5. FUND UNIT TRANSACTIONS

Article 47.Units of a Closed-ended Fund may be publicly traded on a stock exchange upon application by the Fund manager and approval by the securities regulatory body of the State Council.

The securities regulatory body of the State Council may authorise a stock exchange to approve the public trading of Fund units in accordance with the statutory conditions and procedure.

Article 48. In order for Fund units to be traded publicly, the following conditions shall be satisfied:

1. the raising of the Fund complies with the provisions of this Law;

2. the term of the Fund contract is five years or more;

3. the amount raised by the Fund is not less than RMB 200 million;

4. there are not less than 1,000 Fund unit holders; and 

5. other conditions specified by the rules for the public trading of Fund units.

Article 49. The rules for the public trading of Fund units shall be formulated by the stock exchange and submitted to the securities regulatory body of the State Council for approval.

Article 50. After Fund units are publicly traded, the stock exchange shall terminate public trading in them and file the matter for the record with the securities regulatory body of the State Council for the record in any of the following circumstances:

1. the Fund no longer satisfies the conditions for public trading specified in Article 48 of this Law;

2. the term of the Fund contract expires;

3. a general meeting of Fund unit holders decides to terminate public trading early; or

4. other circumstances for termination of public trading stipulated in the Fund contract or specified in the rules for the public trading of Fund units. 

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CHAPTER 6. SUBSCRIPTION AND REDEMPTION OF FUND UNITS

Article 51. The Fund manager shall be responsible for handling the subscription, redemption and registration of the Fund units of an Open-ended Fund. The Fund manager may appoint other organisations recognised by the securities regulatory body of the State Council to handle these matters on its behalf.

Article 52. The Fund manager shall handle subscription and redemption of Fund units on each working day. If the Fund contract provides otherwise, its stipulations shall be followed.

Article 53. The Fund manager shall pay the redemption proceeds as scheduled, except in the following circumstances:

1. the Fund manager is unable to pay the redemption amounts as a result of force majeure;

2. the stock exchange decides to suspend trading in accordance with the law, thereby causing the Fund manager to be unable to calculate the net asset value of the Fund on that day; or

3. other special circumstances stipulated in the Fund contract.

In any of the above circumstances, the Fund manager shall file the matter for the record with the securities regulatory body of the State Council on that day.

The Fund manager shall pay the redemption amounts in a timely manner once the circumstances specified in paragraph (1) of this Article cease to exist.

Article 54. An Open-ended Fund shall maintain sufficient cash or government bonds to pay the redemption amounts to the Fund unit holders. The ratio of cash or government bonds maintained in the Fund assets shall be specified by the securities regulatory body of the State Council.

Article 55. Fees shall be added to or subtracted from the subscription and redemption prices of Fund units on the basis of the net price of the Fund units on the date of subscription or redemption.

Article 56. If there has been an error in the calculation of the price of the net value of Fund units, the Fund manager shall rectify the matter immediately and adopt reasonable measures to prevent further expansion of losses. Where the error in the calculation of the price reaches 0.5% of the net value of the fund units, the Fund manager shall make a public announcement and report the matter to the securities regulatory body of the State Council for the record.

Fund unit holders shall be entitled to demand that the Fund manager and the Fund custodian compensate any losses incurred by the Fund unit holders as a result of the error in the calculation of the price of the net value