REGULATIONS

# REGULATIONS RELATING TO FINANCIAL BUSINESS

# Regulations on Micro Lending Business

Pursuant to the Guiding Opinions on the Pilot Operation of Micro Lending Companies (關於小額貸款公司試點的指導意見) promulgated by the China Banking Regulatory Commission (“CBRC”, now merged into the China Banking and Insurance Regulatory Commission) and the People’s Bank of China (“PBOC”) on May 4, 2008, to apply for setting up a micro lending company, the applicant shall file an application in due form with the competent department of the provincial government, and, upon approval, it shall apply to the local administrative department for industry and commerce for handling the registration formalities and get the business license. The major sources of funds of a micro lending company shall be the capital paid by shareholders, donated capital and the capital borrowed from at most two banking financial institutions. The balance of the capital borrowed from banking financial institutions shall not exceed 50% of the net capital within the scope as prescribed by laws and regulations. The loan interest ceiling shall be left open but below the ceiling determined by thej udicial department, and the floor interest rate shall be 0.9 times the base rate published by PBOC.

# Regulations on Payment Business

Pursuant to the Administrative Measures for the Payment Services Provided by Non-financial Institutions (非金融機構支付服務管理辦法) promulgated by the PBOC on May 19, 2010, to provide payment services, a non-financial institution shall obtain a Payment Business Permit and become a payment institution. An applicant for a Payment Business Permit a limited liability company orj oint-stock company legally formed inside the People’s Republic of China and it is the corporate body of a non-financial institution. A payment institution shall file the statistical statements, financial accounting report and other relevant materials on its payment business with the local branch of the PBOC as required, and the proportion of its paid-in monetary capital against its daily average balance of clients’ deposits shall not be lower than 10%. Where any payment institution continues to operate the payment business after its Payment Business Permit has expired, the PBOC or the branch thereof shall order it to terminate the payment business. On January 13, 2017, the PBOC promulgated the Notice on Matters concerning Implementing the Centralized Deposit of the Funds of Pending Payments of Clients of Payment Institutions (關於實施支付機構客戶備付金集中存管有關事項的通知). According to which, beginning on April 17, 2017, a payment institution shall deposit a certain percentage of the funds of pending payments of its clients in a special deposit account with a designated institution, and there is no interest on the funds in such an account for the time being. The percentage was adjusted by PBOC on December 29, 2017 in the Notice on Adjusting the Centralized Deposit Percentage of the Funds of Pending Payments of Clients of Payment Institutions (關於調整支付機構客戶備付金集中交存比例的通知), which requires the centralized deposit percentage to be raised by 10% on a monthly basis from February to April 2018.

# Regulations on Commercial Factoring

The commercial factoring is a relatively new business model in mainland China, MOFCOM had issued circulars to promote commercial factoring in the specific regions. Pursuant to the Circular on the Pilot Work of Commercial Factoring (關於商業保理試點有關工作的通知), which was promulgated by the MOFCOM on June 27, 2012, a trial implementation of commercial factoring pilot work was permitted in Tianjin Binhai New Area and Shanghai Pudong New Area to explore the approaches to develop the commercial factoring and to better utilize its role in expanding the export and promoting the development of small and medium enterprises. Later in December 2012, the said

REGULATIONS

trial implementation of commercial factoring pilot work was extended to Guangzhou and Shenzhen, which allowed qualified investors from Hong Kong and Macau to establish commercial factoring company in the said cities. Pursuant to the Reply of the Ministry of Commerce on Launching Pilot Commercial Factoring Business in the Chongqing Liang Jiang New Area, the Sunan Modernization Development Demonstration Zone and the Suzhou Industrial Park (商務部關於在重慶兩江新區、蘇南現代化建設示範區、蘇州工業園區開展商業保理試點有關問題的覆函), released by the MOFCOM on August 26, 2013, and amended on October 28, 2015, the trial implementation of commercial factoring was extended to Chonqing Liangjiang New Area, Sunan Modernization Development Demonstration Zone, and the Suzhou Industrial Park.

# REGULATIONS RELATING TO FOREIGN EXCHANGE

# General Administration of Foreign Exchange

Under the Foreign Exchange Administration Rules of the People’s Republic of China (中華人民共和國外匯管理條例), promulgated on January 29, 1996 and last amended on August 5, 2008, and various regulations issued by the State Administration of Foreign Exchange (“SAFE”) and other relevant government authorities, Renminbi is convertible into other currencies for the purpose of current account items, such as trade related receipts and payments, payment of interest and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside China for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from the SAFE or its local office. Payments for transactions that take place within mainland China must be made in Renminbi. Unless otherwise required by SAFE, Chinese companies may repatriate foreign currency payments received from abroad or retain the same abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local office. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaging in settlement and sale of foreign exchange pursuant to relevant rules and regulations of the State. For foreign exchange proceeds under the capital accounts, approval from the SAFE is required for its retention or sale to a financial institution engaging in settlement and sale of foreign exchange, except where such approval is not required under the relevant rules and regulations of mainland China.

Pursuant to the Notice of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment (國家外匯管理局關於進一步改進和調整直接投資外匯管理政策的通知) (the “SAFE Circular No. 59”) promulgated by SAFE on November 19, 2012, that became effective on December 17, 2012 and was further amended on May 4, 2015, approval is not required for the opening of an account entry in foreign exchange accounts under direct investment. SAFE Notice No. 59 also simplified the capital verification and confirmation formalities for foreign invested entities, the foreign capital and foreign exchange registration formalities required for the foreign investors to acquire equities from Chinese party, and further improved the administration on exchange settlement of foreign exchange capital of foreign invested entities.

On July 4, 2014, SAFE promulgated the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles(《關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理有關問題的通知》) (the “Circular No. 37”), effective as of July 4, 2014. Under Circular No. 37, (1) a resident in mainland China must register with the local SAFE branch before he or she contributes assets or equity interests in an overseas special purpose vehicle, or an Overseas SPV, that is directly established or indirectly