Foreign Debt Administration Tentative Measures

(Promulgated jointly by the State Development Planning Commission, the Ministry of Finance and the State Administration of Foreign Exchange on January 8 2003 and effective as of March 1 2003.)

PART ONE: GENERAL PROVISIONS

Article 1: These Measures are formulated with a view to strengthening the administration of foreign debts, regulating the acts of borrowing foreign debts, enhancing the benefit of utilization of foreign debt funds, and guarding against the risk from foreign debts.

Article 2: For the purposes of these Measures, "foreign debts" means debts denominated in foreign currencies for which domestic institutions are liable to non-residents.

Article 3: For the purposes of these Measures, "domestic institutions" means permanent organizations established within the territory of China according to law, including, without limitation, governmental organs, domestic financial institutions, enterprises, institutions and social organizations.

Article 4: For the purposes of these Measures, "non-residents" means institutions and natural persons outside China and non-permanent organizations established by any of them within the territory of China according to law.

Article 5: Based on the types of debts, foreign debts shall be classified under the categories of loans of foreign governments, loans of international financial institutions and international commercial loans.

(I) Loans of foreign governments refer to the official credits borrowed by the Chinese government from foreign governments;

(II) Loans of international financial organizations refer to non-commercial credits borrowed by the Chinese government from the World Bank, Asian Development Bank, Agricultural Development Foundation of the United Nations and other international and regional financial institutions;

(III) International commercial loans refer to commercial credits borrowed by domestic institutions from non-residents, including:

1. Loans borrowed from banks and other financial institutions outside China;

2. Loans borrowed from enterprises, other institutions and natural persons outside China;

3. Medium- and long-term bonds (including convertible bonds) and short-term bonds (including commercial instruments, large negotiable certificates of deposit, etc.) issued outside China;

4. Buyer's credit, deferred payment and other forms of trade financing;

5. International financial leasing;

6. Foreign currencies deposits of non-residents;

7. Debts repaid with spot exchange in compensation trade; and

8. Other kinds of international commercial loans.

Article 6: Based on the repayment liability, foreign debts shall be classified under the categories of sovereign foreign debts and non-sovereign foreign debts.

(I) Sovereign foreign debts refer to foreign debts borrowed by any institutions on behalf of the State as authorized by the State Council, where repayment is guaranteed by State credit.

(II) Non-sovereign foreign debts refer to those foreign debts other than the sovereign foreign debts.

Article 7: For the purposes of these Measures, "external security" means security provided by domestic institutions to non-residents in the form of guarantee, mortgage or pledge in accordance with the PRC Security Law.

Potential external repayment obligation arising as a result of any external security shall be contingent foreign debts.

Article 8: The State shall implement unified administration on various foreign debts and contingent foreign debts. Foreign debt borrowing, external security and the utilization and repayment of foreign debts shall comply with the provisions of relevant laws and regulations of the State and these Measures.

Article 9: The State Development Planning Commission, the Ministry of Finance and the State Administration of Foreign Exchange shall be the administrative departments of foreign debts.

PART TWO: FOREIGN DEBT BORROWING AND EXTERNAL SECURITY

Article 10: The State Development Planning Commission shall, jointly with relevant departments, formulate the State planning on foreign debt borrowing and rationally determine the total amount of foreign debts for all accounts and targets of structural regulation, in the light of the needs of the national economy and social development, the balance of international payment position and capability of bearing for foreign debts.

Article 11: The State shall implement group administration on foreign debt borrowing based on the type of foreign debt, repayment liability and the nature of the debtor.

Article 12: The loans of international financial organizations and foreign governments shall be borrowed by the State from outside on a unified basis.

The State Development and Planning Commission shall, jointly with the Ministry of Finance and other relevant departments, formulate the plan on alternative loans from the World Bank, Asian Development Bank, Agricultural Development Foundation of the United Nations and foreign governments. The Ministry of Finance shall, according to the plan, organize external negotiations and discussions so as to sign loan agreements, and on-lend the loans to domestic debtors directly or through relevant financial institutions. Among them, the plan on alternative loans from the World Bank, Asian Development Bank, Agricultural Development Foundation of the United Nations and foreign governments of key countries shall be subject to the approval of the State Council.

Article 13: The issuance of bonds abroad by the Ministry of Finance on behalf of the State shall be reported by the Ministry of Finance to the State Council for examination and approval, and shall be incorporated in the State planning on foreign debt borrowing. The issuance of medium- and long-term bonds abroad by any other domestic institutions shall be examined and assessed by the State Development Planning Commission jointly with the State Administration of Foreign Exchange, and then reported to the State Council for examination and approval. The issuance of short-term bonds abroad shall be examined and approved by the State Administration of Foreign Exchange, of which issuance of bonds on a rolling basis shall be examined and approved by the State Administration of Foreign Exchange jointly with the State Development Planning Commission.

Article 14: The State shall exercise a system of management of the balance over the borrowing of medium- and long-term international commercial loans by State-owned commercial banks, where the balance shall be reported to the State Council for examination and approval upon examination and verification by the State Development Planning Commission jointly with the relevant departments.

Article 15: The borrowing of medium- and long-term international commercial loans by domestic Chinese-invested enterprises shall be approved by the State Development Planning Commission.

Article 16: The State shall exercise a system of management of the balance over the borrowing of short-term international commercial loans by domestic Chinese-invested institutions, where the balance shall be verified by the State Administration of Foreign Exchange.

Article 17: The State shall exercise control over the total amount of foreign debts borrowed by domestic foreign-invested financial institutions. Concrete Measures in this regard shall be formulated separately.

Article 18: The sum of the cumulative amount of medium- and long-term foreign debts and the balance of short term foreign debts borrowed by a foreign-invested enterprise shall not exceed the difference between the total amount of investment for the project as approved by the approval department and the registered capital.

The foreign-invested enterprise may borrow the foreign debts on its own within the scope of the said difference. If it does exceed such difference, the total amount of investment for the project shall be assessed and determined by the original approval department anew.

Article 19: When providing any external security, domestic institutions shall observe the laws and regulations of the State and the relevant provisions of the administrative department of foreign exchange.

Article 20: Domestic institutions shall not provide any security for foreign institutions not of a business nature.

Article 21: Without the approval of the State Council, no government organs, social organizations or institutions shall borrow foreign debts or provide external security.

Article 22: After signing external loan contracts or security contracts, domestic institutions shall handle registration formalities with the administrative department of foreign exchange according to the relevant provisions. A contract of international commercial loan or security contract shall become effective only upon registration.

PART THREE: UTILIZATION OF FOREIGN DEBT FUNDS

Article 23: Foreign debt funds shall mainly be used for economic development and structural adjustment of the balance of foreign debts.

Article 24: Utilization of medium- and long-term foreign preferential loans such as loans of international financial organizations and loans of foreign governments shall be focused on infrastructure and public welfare construction projects, with priority given to central and western regions.

Article 25: Utilization of medium- and long-term international commercial loans shall be focused on the import of advanced technology and equipment, and adjustment of industrial structure and foreign debts structure.

Article 26: Medium- and long-term foreign debt funds borrowed by domestic enterprises shall be used in a rational manner strictly in compliance with the approved purposes and shall not be appropriated for other uses. If it is indeed necessary to change the purposes thereof, approval shall be obtained according to the original Measures.

Article 27: Short-term foreign debt funds borrowed by domestic enterprises shall be mainly used as operating capital, and shall not be used for such medium- and long-term purposes as fixed assets investment.

Article 28: The responsibility system for project legal person shall be implemented in respect of fixed assets investment projects utilizing foreign debt funds, where the project legal person shall be responsible for the beneficial use of the foreign debt funds.

If procurement by invitation for bids is required under thePRC Invitation and Submission of Bids Law and other relevant provisions of foreign loan institutions, such provisions shall be followed strictly.

Article 29: The administrative departments of foreign debts shall be responsible for the administration and supervision of the utilization of foreign debt funds.

Article 30: The State Development Planning Commission shall designate special inspection personnel for key construction projects of the State utilizing foreign debt funds so as to carry out checking and inspection of the status of implementation of the projects and utilization of funds according to the Inspection of Key State Construction Projects Measures.

PART FOUR: REPAYMENT OF FOREIGN DEBTS AND RISK MANAGEMENT

Article 31: The State shall repay uniformly the sovereign foreign debts. If sovereign foreign debt funds are on-lent to domestic debtors by the Ministry of Finance directly or through financial institutions, the domestic debtors shall undertake the liability for repaying the Ministry of Finance or the financial institutions that on-lend the loan.

Article 32: Debtors shall be solely responsible for any risk arising from and the repayment of non-sovereign foreign debts.

Article 33: Debtors may repay foreign debts with their own foreign exchange funds, or by purchasing foreign exchange with renminbi subject to the approval of the administrative department of foreign exchange.

Article 34: If a debtor, who has a guarantor, is unable to repay foreign debts, the guarantor shall be responsible for the repayment.

Article 35: A guarantor who is required to fulfil the obligations of external security based on the provisions of the security contract shall handle the Measures for approval of fulfilling the external security at the administrative department of foreign exchange.

Article 36: Debtors shall strengthen risk management on foreign debts, and adjust and optimize the debt structure in a timely manner.

Under the pre-requisite of not expanding the scale of the original foreign debts, a debtor may reduce the cost of foreign debts and optimize the debt structure by means of borrowing low-cost foreign debts to repay high-cost foreign debts with the approval of the State Development Planning Commission. When sovereign foreign debts are concerned, the approval of the Ministry of Finance is required.

Article 37: For the purposes of maintaining the value and avoiding the risk, debtors may entrust financial institutions with relevant qualifications to utilize financial vehicles to avoid the exchange and interest rate risks of the foreign debts.

PART FIVE: REGULATION OF FOREIGN DEBTS

Article 38: The administrative departments of foreign debts shall carry out regulation on foreign debts and external security in accordance with the relevant provisions of the laws and regulations of the State and these Measures.

Article 39: When the administrative departments of foreign debts fulfil the regulation duty, they shall have the power to request the debtor and relevant work unit to provide relevant information and check the relevant accounts and assets.

Article 40: When a domestic institution that borrows foreign debts or provides external security fails to handle the required approval formalities or to register based on the relevant provisions, any external loan contract or security contract executed by it shall not have any legal binding effect.

Article 41: An external loan or security that is not reflected in the form of a loan contract or security contract but in fact constitutes an external repayment obligation or potential external repayment obligation shall be brought under foreign debt regulation in accordance with these Measures.

Article 42: It is prohibited to violate the principles of profit and risk sharing and borrow foreign debts in the disguised form of guaranteeing fixed return for direct investment of foreign investors.

Article 43: Chinese-invested enterprises abroad shall not transfer into China the debt risk and repayment liability to be undertaken by themselves without the approval of the administrative departments of foreign debts.

Article 44: If the financial institutions engaged in foreign exchange business discover any act of violation of these Measures during the course of opening foreign exchange and foreign debt accounts for domestic institutions and handling their foreign exchange fund transactions, they shall promptly report to the relevant administrative departments of foreign debts and assist the departments in the investigation.

Article 45: The administrative departments of foreign debts shall keep abreast of the development of foreign debts and establish and perfect the overall foreign debt monitoring and alarming mechanism.

Article 46: The State Administration of Foreign Exchange shall take charge of the statistics and monitoring of foreign debts, and shall announce the foreign debt statistics regularly.

Article 47: If a domestic institution borrows foreign debts or provides external security in violation of these Measures, the directly responsible supervisors and other personnel who are directly responsible for the violation shall be given corresponding administrative penalties by their respective competent authorities in accordance with the law. If the act constitutes a crime, investigation for criminal liability shall be pursued in accordance with the law.

Article 48: If the personnel of the administrative departments of foreign debts commit illegal acts to further personal interests or abuse their power or neglect their duties, their respective departments shall impose administrative penalties on them in accordance with the law. If their acts constitute crimes, criminal liability shall be pursued in accordance with the law.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 49: Domestic institutions that borrow debts from or provide security for institutions in Hong Kong and Macao Special Administrative Regions and Taiwan shall, mutatis mutandis, be handled in accordance with these Measures.

Article 50: The administrative departments of foreign debts shall formulate and perfect the relevant implementing rules in accordance with these Measures.

Article 51: The State Development Planning Commission, the Ministry of Finance and the State Administration of Foreign Exchange shall be responsible for the interpretation of these Measures.

Article 52: These Measures shall become effective from March 1 2003.

1 Unofficial Translation, © Coudert Brothers LLP.

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