To the China Development Bank, all policy banks, state-owned commercial banks, the Postal Savings Bank of China, and joint-stock commercial banks,

To implement the decisions of the Communist Party of China Central Committee and the State Council, establish a long-term arrangement for reinforcing the underlying stability of the capital market, further safeguard the stable operation of the capital market, and boost market confidence, the People’s Bank of China (PBOC) is to launch the central bank lending facility for share buybacks and shareholding increases. The facility is aimed at guiding financial institutions to provide loans to listed companies and their major shareholders. Such loans shall be used for dedicated purposes only and circulate in a closed loop to support share buybacks by listed companies and shareholding increases by major shareholders, thereby pushing listed companies to manage their market caps through active use of such means. The specifics are as follows.

I. Share Buybacks by Listed Companies and Shareholding Increases by Major Shareholders

(I) Eligibility Criteria and Scope. Share buybacks by listed companies and shareholding increases by major shareholders shall be eligible for the policy support, provided that they meet the following basic conditions:

1. Basic conditions for share buybacks by listed companies. Listed companies should meet the criteria set out in Article 8 of the Rules for Share Buybacks by Listed Companies (Announcement of China Securities Regulatory Commission [2023] No.63), while not being subjected to delisting risk warnings. The participating listed companies should disclose their buyback plans.

2. Basic conditions for shareholding increases by major shareholders. “Shareholding increases by major shareholders” refers to the purchases of shares of a listed company by its major shareholders through collective bidding. The listed companies herein shall not be any of those being subjected to delisting risk warnings. The major shareholders herein are, in principle, one of those that possess more than five percent of the shares of a listed company, have the ability to honor their debt obligations, and have not committed any material violation of the law in the past year. The participating major shareholders should disclose their plans for shareholding increases.

3. Listed companies shall be treated equally, regardless of their ownership types. Centrally administered state-owned enterprises are encouraged to take the lead.

(II) Creation of Dedicated Securities Accounts. Listed companies and major shareholders that apply for the loan shall open a dedicated securities account, which shall be used only for share buybacks and shareholding increases. Only one funds account shall be opened for the dedicated securities account, with the lender institution designated as the third-party depository. The dedicated securities account shall not be allowed any change of custody or designation. The opening of the dedicated securities account shall be exempt from the prevailing rules if there is any conflict.

II. Issuance of Loans by Financial Institutions to Support Share Buybacks and Shareholding Increases

(I) Loans in support of share buybacks and shareholding increases shall be available from 21 national financial institutions. Listed companies and major shareholders eligible for the support may apply for the loan at any of the 21 national financial institutions, including the China Development Bank, policy banks, state-owned commercial banks, the Postal Savings Bank of China, and joint-stock commercial banks. Based on market-oriented principles, these financial institutions shall decide on their own to issue such loans to eligible applicants, which shall be used for share buybacks and shareholding increases only. Where the conflicts of rules occur, such loans issued by the 21 financial institutions in accordance with this Notice shall be exempt from the relevant regulatory rules, such as that not allowing credit funds into the stock market”. Credit funds to which the exemption does not apply shall be subject still to the prevailing regulatory rules and be prohibited from entering the stock market.

(II) The loans shall be granted on strict terms. The 21 financial institutions shall abide by market-oriented principles and the rule of law. In compliance with laws and regulations and on the premise that the risks are controllable, they shall set out the loan terms by themselves and decide independently on the grant of the loans, while bearing the risks on their own and ensuring commercial sustainability. The grant of the loans shall be premised on the plans formally disclosed by the listed companies for share buybacks or increases in the holdings of major shareholders, and shall be included in the unified credit lines for these companies. The loan amount shall not exceed a certain percentage of the funds needed for share buybacks or shareholding increases. Set reasonably in line with preferential principles, the loan interest rates shall be no higher than 2.25 percent in principle and be exempt from the self-regulatory agreements on interest rate setting.

(III) The loan funds shall be put under rigorous management. It must be ensured that the loan funds are used for dedicated purposes only and circulate in a closed loop. The 21 financial institutions shall open dedicated bank loan accounts for the listed companies and the major shareholders, as well as the funds accounts for the aforementioned dedicated securities accounts. They shall disburse the loans to the funds accounts and oversee that the loan funds are used by the listed companies and the major shareholders solely for share buybacks and shareholding increases. Cash withdrawals or outward transfers from the funds accounts shall not be allowed until after the loans are fully repaid.

(IV) The internal control measures shall be improved. In line with the principle that a high priority should be given to internal controls as well as institutional building, the 21 financial institutions shall establish and improve the relevant rules and internal control measures; formulate the policies, standards, and procedures for the loans supporting share buybacks and shareholding increases; come up with tailored loan products and the corresponding statistical items; specify the conditions for loan issuance, such as the sources of repayment funds and the provision of acceptable collateral; and strengthen management of the relevant risks.

(V) Arrangements shall be made for information sharing. The 21 financial institutions shall update the relevant information with the PBOC, the National Financial Regulatory Administration (NFRA), and the China Securities Regulatory Commission (CSRC) in a timely manner. Before the disbursement of such a loan, the lender institution shall duly report the information, such as on the borrower and the loan amount, term, interest rate, and purpose, to the PBOC, NFRA, and CSRC.

III. Issuance of Central Bank Loans by the PBOC to Support Share Buybacks and Shareholding Increases

(I) Basic Elements of the Central Bank Loans. Any of the 21 financial institutions that have issued loans to listed companies or major shareholders in accordance with this Notice to support share buybacks or shareholding increases may apply to the PBOC for the central bank loans. With an initial quota of RMB300 billion in total, the 1-year facility offers an annual interest rate of 1.75 percent. The tenure may be extended according to circumstances.

(II) Issuance Procedures. The central bank loans shall be issued on a quarterly basis. To apply for the loans, the 21 financial institutions shall submit formal applications to the PBOC no later than the tenth day of the first month of a quarter (postponed accordingly if it falls on a holiday), together with the ledger accounts and relevant materials on such loans they issued in the preceding quarter. Upon review of the application materials in collaboration with the CSRC, the PBOC shall issue to them the central bank loans equivalent to 100 percent of the principal of the qualified loans.

(III) Collateral Requirements. The 21 financial institutions shall provide collateral to the PBOC, such as qualified bonds or the credit assets internally rated as acceptable by the central bank.

IV. Strengthening Supervision and Administration

Working with the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), NFRA, and CSRC, the PBOC will set up supervisory arrangements to oversee that the loans are used for dedicated purposes only and in a closed loop, thereby providing effective support for share buybacks and shareholding increases.

The CSRC will urge listed companies and major shareholders to open dedicated securities accounts solely for share buybacks and shareholding increases. It will also supervise share buybacks by listed companies and shareholding increases by major shareholders and check on the progress. The NFRA will exercise oversight over the issuance of loans by the 21 financial institutions in accordance with this Notice to support share buybacks by listed companies and shareholding increases by major shareholders. It will oversee that the credit funds are strictly prohibited from entering the stock market except for the circumstances exempted in this Notice. The PBOC will strengthen supervision over the use of the central bank loans. Where problems are found, it will withdraw the central bank loans, disqualify the relevant financial institutions from access to structural monetary policy tools, or take other measures according to the severity of the problem.

This policy shall be a temporary arrangement. Financial institutions to which the support provided by the policy does not apply shall strictly abide by the prevailing regulatory rules.

The People’s Bank of China

National Financial Regulatory Administration

China Securities Regulatory Commission

October 17, 2024