RMB Borrowing - A Market with Unrealized Potential

RMB Borrowing - A Market with Unrealized Potential

At the end of 2000, the value of renminbi (RMB) loans stood at Rmb9.94 trillion. Of this, long-term and medium-term loans increased by Rmb379.3 billion over 1999, or Rmb30.3 billion more than the increase recorded during the previous year.1 This is almost one hundred times the size of the largest syndicated facility in Asia in the same year. However, very little of this money represents loans to foreign investment enterprises (FIEs). With an increasing demand for RMB working capital and investment funds, is the current legislation too restrictive from the point of view of both possible lenders to FIEs and potential borrowers themselves?

The People's Bank of China (PBOC) is the PRC's central bank and is responsible for formulating and implementing monetary policies as well as supervising and administering the financial industry under the leadership of the State Council. The People's Bank of China, Lending General Provisions (promulgated August 1 1996, the Lending General Provisions) sets out the framework for the lending of RMB and foreign currency debts. The Lending General Provisions and all implementing rules, circulars and notices issued in relation thereto by the PBOC are of general application to all commercial banks in the PRC.

The Bank of China (BOC) is the commercial arm of the PBOC. Specific legislation, such as the Bank of China's Loans to Foreign Investment Enterprises Procedures (promulgated April 24 1987, the BOC Procedures), set out rules pursuant to which the business of the BOC should be run. BOC legislation should be applicable only to the BOC and not to other commercial banks in the PRC. However, it is possible that other commercial banks may refer to the BOC legislation given the absence of equivalent legislation applicable to themselves and the special position of the BOC in the PRC. To the extent that there is inconsistency between rules promulgated by the PBOC and those specifically applicable to the BOC, it is likely that the BOC will seek to comply with the rules of a higher standard.

Foreign Banks' Ability to Provide RMB Loans - Licence Required