1 Q: What is electronic savings bond?
A: In order to enrich the variety of treasury bonds, improve the management of obligatory rights for bondholders, enhance the issuing efficiency of T-bonds and offer convenience for the investors, the MOF, based on international experience, decided to issue electronic savings bonds. Electronic savings bond is a type of non-circulating RMB bond issued by MOF toward Chinese citizens with a large amount of savings funds. Its obligatory rights are recorded electronically.
2 Q: What are the main characteristics of the issuance and encash of savings bonds?
A: 1) The savings bonds are registered T-bonds. The real name system is adopted. Only the Chinese citizens residing in China may purchase it. The bonds cannot be circulated and transferred; 2) the obligatory rights will be recorded electronically. The capitals will be settled through the RMB settlement account opened by the investor at the administering bank; 3) the savings bonds are sold only during the issuance period. When the issuance period ends you may encash the bond before maturity within the stipulated time limit; 4) the interest rate has been confirmed when it is issued. The confirmed rate is the same as the stated rate. MOF will pay the principals or interests to investors on maturity or interest payment date; 5) the minimum of savings bonds is 100 yuan. All transactions are handled at the integral multiple of 100 yuan.
3 Q: How many types of savings bonds do we have in China?
A: During the pilot phase, there are two types of electronic savings bonds for investors’ choices: 1) fixed interest rate and fixed term; 2) fixed interest rate and flexible term. The type of fixed interest rate and fixed time is the same as the existed certificate T-bond. The term and interest rate (stated interest rate) are confirmed when it is issued. There are two interest-paying methods such as lump-sum payment of principal and interest, or the payment of interest on a regular term. The savings bond with fixed interest rate and flexible term is a new type of bonds. Investors may choose holding to maturity or they may apply for terminating their obligatory rights and debts when their holding reached the stipulated term. If you want to terminate your investment, the interest rate is calculated according to the agreed rate, which is lower than the stated interest rate. Because investors have rights to choose, the term of this kind of T-bond is flexible actually. No matter investors choose to hold it until maturity or terminate their investments, the interest rate is confirmed in advance. It will not change with the overall market interest rate. That is to say that the interest rate is fixed. The interest is paid off together with the principal.
4 Q: Through which banks will electronic saving bonds be issued?
A: MOF and the People’s Bank of China confirm that Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, China Merchants Bank and Bank of Beijing have obtained the qualification to sell electronic savings bonds over the counters of their outlet as the agent banks. Investors may go to the nearby outlets of the seven banks mentioned above or dial their hotline for details. These are telephone number of their hotline: Industrial and Commercial Bank of China (95588), Agricultural Bank of China (95599), Bank of China (95566), China Construction Bank (95533), Bank of Communications (95559), China Merchants Bank (95555) and Bank of Beijing (96169). Investors also may dial the policy inquiry hotline (010-68081427, 010-68081167) of National Debt Association of China (NDAC) for details.
5 Q: How can investors purchase electronic saving bonds?
A: First you, as an investor, should open or have an individual T-bond custody account in an administering bank. You do not need to open another one if you have opened a book-entry T-bond custody account over the counter of commercial banks. You may open the account with your valid identification at the counters of these seven commercial banks from 20 June 2006. Banks will not charge any account opening and maintaining fees for the individual T-bond custody account for savings bonds. While you open the individual T-bond custody account, you should open a RMB settlement accounts (a debit card account or a demand deposits bankbook) as the capital account for T-bond account to settle and cash principals and interests in the same bank or a designated administering bank. With the individual T-bond custody account, investors may go to purchase electronic savings bonds at the network outlet of commercial banks where he or she opens the account during the issuing period.
6 Q: How to hold obligatory rights of electronic savings bonds in custody?
A: A secondary custody system of telephone recheck and inquiry is implemented for the electronic saving bonds. The primary custody means that authorized by MOF and the People’s Bank of China, China Government Securities Depository Trust & Clearing CO. LTD may open the general agent account for an administering bank which records all obligatory rights of T-bonds managed by this administering bank. China Government Securities Depository Trust & Clearing CO. LTD is responsible for authenticity, accuracy, completeness and security of the primary custody account. The secondary custody means that administering bank opens the individual T-bond custody account for investor that specifically records obligatory rights of T-bonds managed by this administering bank. The administering bank is responsible for authenticity, accuracy, completeness and security of the secondary custody account.
7 Q: How to inquire these rights?
A: After you, as investors, purchase the electronic savings bonds, you may ask the bank clerks to print out the statement at the counter or dial the service number to inquire your obligatory rights. Some Commercial Banks including Industrial and Commercial Bank of China, Bank of China, Bank of Communications and Bank of Beijing may offer the special T-bond account bankbook for investors, which can record and check the obligatory rights. Investors may recheck the remaining balances of the previous day through the T-bond recheck and inquiry system of China Government Securities Depository Trust & Clearing CO. LTD (Tel: 010-66005000), which is available from 0:00 a.m. to 17:00 p.m.
8 Q: How to pay cash the due and undue electronic savings bonds?
A: Investors do not need to go to the counters for interest payment and cashing, and MOF entrusts commercial banks to directly deposit interest or principals of savings bonds into the capital account designated by investor at interest payment day and maturity day.
If the investor wants to cash before maturity, he or she should go to the outlet of commercial banks to complete required procedures with his or her valid identification, individual T-bond custody account and capital account, and pay charges of 1‰ of the principal. The cashing business is stopped 15 working days before interest payment day and maturity day. The bank will resume the cashing business after the interest payment day.
9 Q: What are the differences between the upcoming electronic savings bonds and the existing certificate T-bonds?
A: Their differences are as follows:
1. Different procedures for application and purchase. The investor may directly purchase certificate T-bonds with cash. If they want to purchase electronic savings bonds, they need to open an individual T-bond custody account and designate the corresponding capital account.
2. Different recording forms of obligatory rights. The obligatory right of certificate T-bond is recorded in the form of a “the receipt voucher of certificate T-bond of the People’s Republic of China”, which will be managed by the Commercial Banks and investors. The obligatory right of electronic savings bonds is recorded electronically. The electronic savings bonds adopt the secondary custody system. Electronic savings bonds are centrally managed by the headquarters of administering bank and China Government Securities Depository Trust & Clearing CO.LTD. This may reduce investors’ risks of keeping paper certificates of obligatory rights.
3. Different interest payment methods. The principal and interest if certificate T-bond is paid off one time upon maturity. The electronic savings bond has multiple methods of interest payment. The interest may be paid annually or paid off together with principal.
4. Different cashing methods upon maturity. When the certificate T-bond expires, the investor may cash the bond at the outlet of administering banks. The interests are not added for overdue days. When the electronic savings bond expires, Commercial Banks will automatically transfer the principal and interest into investors’ capital accounts. The interest of principal and interest in capital account will be calculated and paid at the demand deposit rate.
5. Issuing targets. Both Individual and organizations may purchase the certificate T-bond while only individuals are allowed to purchase electronic savings bonds and organizations are forbidden to purchase or hold electronic savings bonds.
6. Different administering organizations. The certificate T-bond may be sold and cashed at outlets of 37 certificate T-bond agent groups composed by commercial banks and the postal savings service organizations across the nation. MOF and PBC confirm that Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, China Merchants Bank and Bank of Beijing have obtained the qualification to sell electronic savings bonds over the counters of their outlet as the agent banks. They have opened the outlets of commercial banks with corresponding system.
10 Q: What are the electronic savings bonds strong points compared to other investment products?
A:
1. Highest credit rating and best security. The electronic savings bong is a national debt issued by MOF on behalf of our government. It is guaranteed by government’s credit. MOF will pay the principal and interest at maturity. So it enjoys the highest credit rating.
2. Free of interest tax and stable returns. The electronic savings bond enjoys a stable interest rate. The individual income tax is exempted from the interest income. The issuance interest rate is higher than the after-tax interest rate of bank savings deposit at the same term. During the whole deposit period before maturity, the stated value of electronic savings bond remains stable and the investor may receive accrued interests. They do not need to share risks of the fluctuation of price.
3. Easy to purchase and scientific management. The electronic savings bond, which will soon be issued, may be sold at over 60,000 outlets in most provinces, autonomous regions and municipalities across the nation. Urban and rural residents may purchase it at a nearby location. The obligatory rights of savings bonds are recorded by the computer system. Investors may inquire obligatory rights and recheck them through telephone. The management is more scientific and the obligatory right becomes safer.
4. Easy to cash. The electronic savings bond cannot be traded in the market. But it can be cashed before maturity based on related regulations. When investors purchase savings bonds, they receive a powerful financing tool. When they need a small amount of loans, they may pledge the savings bond for pledge loan in the bank where they purchase it.
11 Q: What is the difference in terms of returns between the electronic savings bond and savings deposit with the same time?
A: Based on regulations, investors need to pay 20% personal income taxes for the interest income obtained from bank deposits. Presently the interest rate of 3-year-term savings deposit is 3.24% and the earnings after-tax interest rate is 2.59%.
For example you deposit 10 thousand yuan for a 3-year term in the bank. 20% interest tax is deducted upon maturity. The depositor may receive 777.6 RMB actual interests. If you purchase the electronic savings bond with fixed interest rate (3.14%, 0.1% lower than the nominal interest rate of savings deposit) for a 3-year term, you may receive 314 yuan of interests per year and receive 942 yuan in total for 3 years, 164.4 yuan higher than deposit interest. If we calculate the repeated investment earnings of T-bond interest, the accumulative interests of the electronic savings bond will be much higher.
