Regional branches, operations offices, and central sub-branches in capitals of provinces (autonomous regions) of the People's Bank of China (PBC); and policy banks, wholly state-owned commercial banks, and joint-stock commercial banks:
For the purposes of regulating and promoting the sound development of the bill business and further clarifying the rules related to the bill business, you are hereby notified of the relevant issues as follows:
I. Examining the genuine trading relations under commercial drafts
In accordance with the provisions in the Law of the People's Republic of China on Bills, the issuance, acquisition, and transfer of commercial drafts shall be based on genuine trading relations and creditor-debtor relations. When the drawer (or holder) applies to the bank for acceptance or discount, the accepting or discount bank shall verify the genuine trading relations and creditor-debtor relations under the commercial draft according to the relevant provisions of payment and settlement.
The accepting bank shall examine, among others, the eligibility and credit standing of the drawer of the banker's acceptance, the trade contacts, and the items of information recorded on the acceptance. When the holder of a commercial draft applies to the bank for discount, the applicant shall provide the bank with the originals of the trade contacts, as well as the value-added tax invoice or plain invoice issued between the discount applicant and the immediate prior party in accordance with the relevant taxation provisions.
When the discount bank conducts inter-bank discount or applies to the PBC for central bank discount, it shall no longer provide the trade contacts and the VAT invoice or plain invoice between the discount applicant and the immediate prior party, but bear the responsibility of examining whether the draft complies with the form and literal interpretation requirements of the applicable laws, regulations, and rules.
II. Handling the pledge of bills
1. When a bill is pledged, it shall be endorsed regarding the pledge in accordance with the relevant provisions of the Law of the People's Republic of China on Bills.
2. Where the pledge of a bill needs to be removed because the performance of the principal obligation is completed, the endorsee shall return the pledged instrument to the endorser in the manner of simple delivery. When the bill matures, the holder shall exercise rights in accordance with the relevant payment and settlement provisions.
3. Where the endorser fails to perform the obligation as scheduled after the obligation guaranteed by a pledged bill becomes due, the endorsee may legally materialize the pledge, but shall not transfer or discount the bill. When a bill matures, the endorsee shall exercise its rights in accordance with the relevant payment and settlement provisions. If the endorsee is a bank, the recovery procedures for discounted commercial drafts upon maturity shall apply mutatis mutandis, and the words “pledged bill receipt” shall be noted in the reference column of the collection order.
When entering into a contract of pledge, the pledgor and the pledgee shall take into full consideration the maturity of the obligation and the time of presentation for payment, among others, under the bill, and specify the rights and obligations of the two parties, in order to avoid any disputes over the instrument.
III. Manners of inquiry and replies regarding banker's Acceptances
In addition to the manners prescribed in the Notice of the People's Bank of China on Issues Concerning the Handling of Inquiries and Replies Regarding Inter-bank Banker's Acceptances by Commercial Banks (No. 63 [2002], PBC), inquiries and replies regarding banker's acceptances may be made in the following manners:
(1) Making inquiries and replies via the High-Value Payment System: Inquiries and replies regarding banker's acceptances shall be specifically handled in accordance with the relevant provisions of the Measures for the Business Processing in the High-Value Payment System (For Trial Implementation). (See Annex for the business processing procedures for inquiries and replies regarding banker's acceptances)
(2) Making inquiries via fax: The accepting bank shall, after receipt of the faxed inquiry request from the inquiring bank, fax the first page (card) of the acceptance to the inquiring bank.
(3) Making inquiries and replies via the website “www.chinacp.com.cn” of the China Foreign Exchange Trade System/the National Interbank Funding Center: A commercial bank making inquires and replies via the website “www.chinacp.com.cn” shall enter into an agreement with the China Foreign Exchange Trade System/the National Interbank Funding Center to specify the rights and obligations of the two parties.
(4) On-the-spot inquiries: The inquiring bank may send a person carrying the acceptance to make inquiry at the accepting bank.
IV. Other related issues
1. Where the holder of a commercial draft which has not been transferred by endorsement authorizes a bank with which the holder maintains an account to collect payment from the accepting bank, the payee's name shown on the collection order shall be the same as the one recorded on the draft; the holder's bank and account number may differ from the payee's bank and account number recorded on the draft, but the holder's bank shown on the collection order and the payee's bank recorded on the draft shall be within the same system.
2. Where an individual who has not opened a settlement account in a bank demands payment with a transfer bank draft, the individual shall choose any banking institution within the same system as the issuing bank or the agent bank for the issuing bank to present the draft for payment, and the drawee bank or the agent bank for the drawee bank shall verify the draft and make payment in accordance with the relevant payment and settlement provisions.
3. After providing the central bank discount of commercial drafts for commercial banks, the PBC must handle the recovery formalities for central bank discount payment upon maturity in strict accordance with the relevant payment and settlement provisions, and may not require the central bank discount applicants to undergo the recovery in any other manner.
V. This Notice shall be implemented from October 1, 2005. All regional branches, operations offices, and central sub-branches in capitals of provinces (autonomous regions) of the PBC shall forward this Notice to the urban commercial banks, rural commercial banks, rural cooperative banks, urban and rural credit cooperatives, and foreign-funded banks within their respective provinces (autonomous regions and municipalities directly under the Central Government).
All entities shall report their implementation and any issues encountered in their implementation to the Headquarters of the PBC in a timely manner. Contact: Ou Yunjun Tel: 010-66195542
The People's Bank of China
September 5, 2005
Annex: Business Processing Procedures for Inquiries and Replies Regarding Banker's Acceptances via the High-Value Payment System (please refer to the Chinese version)
