The Rules of the General Administration of Customs of the People’s Republic of China on Inspection over Bonded Operations, which were deliberated and adopted at the Executive Meeting of the General Administration of Customs on March 10, 2008, are hereby promulgated and shall come into force as of June 1, 2008.

Sheng Guangzu

Minister

General Administration of Customs

March 31, 2008

Rules of the General Administration of Customs of the People’s Republic of China on Inspection over Bonded Operations

(Adopted at the Executive Meeting of the General Administration of Customs on March 10, 2008, promulgated in the form of Decree No. 173 of the General Administration of Customs of the People’s Republic of China on March 31, 2008, and effective as of June 1, 2008)

Chapter I General Provisions

Article 1 These Rules are formulated in accordance with the Customs Law of the People’s Republic of China (hereinafter referred to as the Customs Law) and other relevant laws and administrative regulations with a view to regulating Customs inspection over bonded operations and strengthening the Customs supervision over and administration of bonded operations.

Article 2 Under these Rules, the term “inspection over bonded operations” refers to Customs acts, undertaken as prescribed by law, of checking and verifying bonded processing goods and bonded logistics goods within the time limit of Customs control, and of checking and supervising the truthfulness and legality of the bonded business operated by bonded processing enterprises and bonded logistics enterprises and in special Customs control areas and bonded Customs control premises.

Article 3 Inspection over bonded operations shall be organized and conducted by Customs departments responsible for supervision over and administration of bonded operations.

Article 4 An inspection over bonded operations shall be carried out jointly by two or more Customs Assurance Officers.

In carrying out an inspection, Customs Assurance Officers shall produce their Customs inspection certificates, which shall be made and issued by the General Administration of Customs only.

Article 5 A bonded processing enterprise, a bonded logistics enterprise, or an operator of a special Customs control area or bonded Customs control premises (hereinafter referred to collectively as the inspected party) may request Customs in writing to keep confidential its business secrets by listing in detail the contents deserving confidentiality protection.

Customs shall, in accordance with the relevant provisions of the State, properly keep the materials involving business secrets that are provided by an inspected party.

Article 6 An inspected party shall keep accounts of bonded and non-bonded goods in a unified way, but do business accounting for them separately.

An inspected party shall, in accordance with the Accounting Law of the People’s Republic of China and other relevant laws and administrative regulations, set up standardized financial account books and statements, record its financial conditions as well as the import, export, storage, movement, sales, use and loss of its bonded goods, complete the relevant documents and account books faithfully, and keep accounts and do business accounting based on vouchers that are both legal and valid.

An inspected party shall keep the above-mentioned materials within the time limit of Customs control over its bonded goods and for an additional period of 3 years after the expiration of the time limit.

Article 7 Customs may conduct an inspection by visiting the premises of an inspected party to verify data, check documents, count goods, and check account books against the physical goods, or by checking the paper documents submitted by the inspected party against the electronic data transmitted by it.

Chapter II Scope of Inspection over Bonded Operations

Section One Inspection over Bonded Processing Operations

Article 8 Customs may conduct inspections over bonded processing goods and the relevant bonded processing enterprise from the date when the enterprise applies to Customs to go through the formalities of recordation for bonded processing operations till the date when Customs writes off and closes its bonded processing handbook, or in the case of a bonded processing enterprise that connects with Customs through a computer network for online Customs control, from the beginning day of the write-off cycle of the enterprise’s electronic account till the date when the write-off cycle is written off and closed.

Article 9 In conducting an inspection over a bonded processing enterprise, Customs shall check the following particulars:

(a) Whether the factory premises, warehouses, major production equipment, legal representative, chief person-in-charge and other basic information of the enterprise match those recorded with Customs;

(b) Whether the account books of the enterprise are standardized and complete;

(c) Where a division or merger occurs to the enterprise or it goes bankrupt, whether it has gone through Customs formalities as required by the relevant provisions; and

(d) Where the enterprise engages in further processing through a transfer or in outsourced processing, whether it meets the requirements of Customs for such processing operations in terms of its conditions and production capacity.

Article 10 In conducting an inspection over bonded processing goods, Customs shall check whether the following particulars are truthful:

(a) the commodity name, commodity code, specification, model, value, place of origin, quantity, etc. of the imported raw materials, parts or components and the exported finished products, as declared by the bonded processing enterprise;

(b) the information on unit consumption as declared by the bonded processing enterprise;

(c) the commodity name, commodity code, specification, model, value, quantity, etc. of bonded goods sold on the domestic market, as declared by the bonded processing enterprise;

(d) the commodity name, commodity code, specification, model, quantity, etc. of goods under further processing operations through a transfer or under outsourced processing operations, as declared by the bonded processing enterprise;

(e) the commodity name, commodity code, specification, model, quantity, etc. of bonded goods for which an abandonment application has been filed by the bonded processing enterprise;

(f) the commodity name, commodity code, specification, model, quantity, degree of damage, determination of value, etc. of bonded goods suffering damage or loss, as declared by the bonded processing enterprise; and

(g) the name, quantity, etc. of the non-priced equipment of the bonded processing enterprise.

Section Two Inspection over Bonded Logistics Operations

Article 11 Customs may conduct inspections over bonded logistics goods and the relevant bonded logistics enterprise from the date when the goods are transported into a special Customs control area or bonded Customs control premises till the date when they are transported out of the area or premises.

Article 12 In conducting an inspection over a bonded logistics enterprise, Customs shall check the following particulars:

(a) Whether the factory premises, warehouses, legal representative, chief person-in-charge and other basic information of the enterprise match those recorded with Customs;

(b) Whether the account books of the enterprise are standardized and complete; and

(c) Where a division or merger occurs to the enterprise or it goes bankrupt, whether it has gone through Customs formalities as required by the relevant provisions.

Article 13 In conducting an inspection over bonded logistics goods, Customs shall check whether the following particulars are truthful:

(a) the entry, exit, inventory, movement, simple processing, usage, etc. of the goods;

(b) the sales, transfer, mortgage, pledge, lien, use for other purposes, or other disposal of the goods;

(c) the commodity name, commodity code, specification, model, value, quantity, etc. of bonded goods sold on the domestic market by the bonded logistics enterprise;

(d) the commodity name, commodity code, specification, model, quantity, etc. of bonded goods for which an abandonment application has been filed by the bonded logistics enterprise; and

(e) the commodity name, commodity code, specification, model, quantity, degree of damage, determination of value, etc. of bonded goods suffering damage or loss, as declared by the bonded logistics enterprise.

Section Three Inspection over Special Customs Control Areas and Bonded Customs Control Premises

Article 14 Customs may conduct inspections over the management and operation of special Customs control areas or bonded Customs control premises from the date when those areas or premises are accepted by Customs as qualified for operation till the date when their time limit of operation expires.

Article 15 In conducting an inspection over a special Customs control area, Customs shall check whether the following particulars meet the relevant requirements:

(a) the fencing, monitoring and surveillance facilities of the area;

(b) the inhabitation of people and establishment of commercial consumption facilities within the area;

(c) the building of computerized public information platform by the administrative body of the area;

(d) the application of computer management systems by the inspected party in the area; and

(e) the setting up of account books and statements by the operator of the area.

Article 16 Customs shall inspect the following particulars of bonded Customs control premises:

(a) whether the premises are used solely for the purposes intended;

(b) whether the inspected party in the premises applies a computer management system that meets the requirements of Customs control and is connected with Customs; and

(c) whether the operator of the premises has set up account books and statements that meet the requirements of Customs control.

Chapter III Procedures of Inspection over Bonded Operations

Section One Preparations for Inspection

Article 17 Before conducting an inspection, Customs shall, in light of the specific situations of enterprises engaging in bonded operations, the import and export of bonded goods and the operations of special Customs control areas and bonded Customs control premises, determine the inspected party and work out a Customs inspection plan.

Article 18 Before conducting an inspection, Customs shall inform the inspected party.

However, under special circumstances, a Customs house may conduct an inspection without prior notice, upon the approval of the director of the Customs house.

Article 19 Where an inspected party provides an audit report produced by an intermediary recognized by Customs, and the report is accepted by Customs upon examination, Customs may exempt the inspected party from inspection. Where Customs deems it necessary, it may entrust an intermediary to participate in an inspection over bonded operations.

Section Two Conducting an Inspection

Article 20 In conducting an inspection, Customs Assurance Officers may exercise the following powers:

(a) consult and make copies of the contracts, invoices, vouchers, account books, business correspondences and other materials of the inspected party that are pertinent to its bonded operations (hereinafter referred to collectively as account books and documents);

(b) enter the inspected party’s premises for production, operation and storage of goods to check the particulars of production and operation pertinent to its bonded operations as well as the goods; and

(c) query the inspected party’s legal representative, chief person-in-charge or other relevant personnel on particulars pertinent to its bonded operations.

Article 21 An inspected party shall accept Customs’ inspection over its bonded operations and offer cooperation by providing necessary working conditions, faithfully presenting information, providing Customs with the relevant account books, documents and other paper materials as well as the electronic data, as required for the inspection, and shall by no means refuse or delay the inspection or hide any information.

When Customs is consulting or making copies of relevant materials of an inspected party, or entering the inspected party’s premises for production, operation and storage of goods to conduct an inspection, the relevant person-in-charge of the inspected party or a representative authorized thereby shall be present, and as required by Customs, sort and make an inventory of the account books, open the premises for storage of goods, or move or unpack the goods.

Where an inspected party entrusts another organization or person to keep accounts, the party so entrusted and the inspected party shall jointly offer cooperation for Customs to consult relevant accounting materials.

Article 22 The materials, data, etc. extracted by Customs in the process of inspection shall be signed by the inspected party for confirmation.

Article 23 When Customs completes an inspection, the Assurance Officers shall fill out a Record of Customs Inspection over Bonded Operations (see Annex 1) and apply their signatures to the record.

Where the inspection is conducted on site, the Record of Customs Inspection over Bonded Operations shall also be signed or sealed by the relevant person-in-charge of the inspected party or a representative authorized thereby. In case the person-in-charge or the representative refuses to sign or seal, Customs Assurance Officers shall make a note in the record.

Section Three Actions Following Inspection

Article 24 After an inspection is completed, Customs shall put the Record of Customs Inspection over Bonded Operations and relevant materials on file, or establish an electronic archive for future reference.

Article 25 Customs shall, within 15 working days upon completion of an inspection over bonded operations, draw a conclusion on the inspection, and inform the inspected party.

Where a conclusion on inspection over bonded operations is found to be wrong, Customs shall make a correction accordingly.

Article 26 Where, through inspection over bonded operations, Customs finds that the inspected party fails to meet the requirements of Customs control, it may take the following actions, and fill out a Notification on Actions Following Inspection over Bonded Operations (see Annex 2) and inform the inspected party in writing:

(a) order the inspected party to go through the formalities that it has failed to;

(b) order that a correction be made within a prescribed time limit; and/or

(c) order the provision of a security in accordance with the relevant provisions.

Article 27 Acts in violation of these Rules that constitute smuggling, breaches of provisions on Customs control or other breaches of the Customs Law, shall be dealt with by Customs in accordance with the relevant provisions of the Customs Law and the Regulations of the People’s Republic of China on Implementing Customs Administrative Penalty. Where such an act constitutes a crime, criminal liability shall be imposed accordingly.

Chapter IV Supplementary Provisions

Article 28 For the purposes of these Rules:

The term “enterprise engaging in bonded operations” refers to an enterprise that is registered with Customs and recorded for engagement in bonded processing operations, bonded logistics operations or operation of a special Customs control area or bonded Customs control premises under the relevant policies on bonded operations and in accordance with law.

The term “bonded processing operations” refers to activities of research & development, processing, assembly and manufacturing of bonded goods imported or exported under the category of “processing with supplied materials”, “processing with imported materials” or other categories of Customs control, and related supporting services, undertaken with the approval of Customs, which are, by nature, production activities.

The term “bonded logistics operations” refers to activities of movement of goods within the Chinese mainland for which import and duty/tax payment formalities have not been handled or for which export formalities have been completed, undertaken with the approval of Customs, which are, by nature, service activities.

Article 29 The right of interpretation of these Rules shall remain with the General Administration of Customs.

Article 30 These Rules shall be effective as of June 1, 2008.

Annexes:

1. Record of Customs Inspection over Bonded Operations

2. Notification on Actions Following Inspection over Bonded Operations

Annex 1

Record of Customs Inspection over Bonded Operations

Note: This record is made in triplicate, two copies of which are to be retained by Customs, one by the inspected party.

Instructions for Completion of the Record of Customs Inspection over Bonded Operations:

1. Date of Inspection: the starting and ending dates of the inspection.

2. Place of Inspection: the specific address where the inspection takes place.

3. Inspection Items: major targets of or reasons for inspection.

4. Materials Provided by the Inspected Party: the names and numbers of the data, statements, account books, documents and other materials provided by the inspected party (including electronic materials).

5. Particulars of Inspection: the process, result, etc. of the inspection.

Annex 2

Notification on Actions Following Inspection over Bonded Operations

________________Customs of the People’s Republic of China

File No.:

:

In accordance with the relevant provisions of the Rules of the General Administration of Customs of the People’s Republic of China on Inspection over Bonded Operations, we have conducted an inspection over your bonded operations. Upon inspection, we find that you _______________. We hereby order you to do the following upon receipt of this notification:

□ Within days, go through the relevant formalities:____________________________________________________________________.

□ Within days, make corrections: .

□ Within days, provide a security: .

Failure to comply with Customs requirements specified above will result in Customs actions taken in accordance with law against your company and the persons directly responsible.

(Customs Seal)

Date:

We acknowledge receipt of this notification.

(Seal of the Inspected Party or Signature of Its Representative)

Date:

Note: This notification is made in duplicate, with Customs and the inspected party retaining one copy respectively. Please check □ with a √, and fill in the actions to be followed up by the inspected party and the time limit.

(All information in this document is authentic in Chinese. English is provided for reference only. In case of any discrepancy, the Chinese version shall prevail.)