A test to be used for placement of students at the University of Texas (UT), Austin, in lower-level courses in Chinese and to award credit-by-examination in some courses was developed, and its validity was tested. Faculty members from the Department of Oriental and African Studies and the Measurement and Evaluation Center of the UT constructed a test with a 20-item listening section (modern standard Mandarin) and a 50-item reading section. The developed test was administered three times in validity studies as follows: (1) in spring 1985 to 56 students, 17 of whom were Chinese speakers; (2) in fall 1985 to 87 students, 18 of whom spoke Chinese; and (3) in spring 1986 to 68 students, 16 of whom spoke Chinese. Test scores were compared with course grades. Results indicate that faculty members' concerns about placement of students in lower-level courses were appropriate. Speakers of Chinese achieved higher scores on the placement test and received higher grades in each course than did non-Chinese speakers. For decision scores to determine student placement in the future, faculty members derived a set of scores for each of the four lower level courses. Twenty-two tables and one bar graph contain data from the studies. Five appendices present additional information, including 21 tables of descriptive statistics and the handout for students describing the credit-by-examination program. (SLD)