Shareholder loans permitted to overseas subsidiaries

The loan to be advanced can be sourced from the foreign exchange owned by the lender, the foreign exchange purchased by the lender with renminbi, or the foreign exchange fund pool duly approved by Safe (a centralised funds management solution for group members of multinational companies).

Qualifications of lender and borrower

• Both the lender and the borrower must be duly established, and their respective registered capital shall have been fully paid up;

• Both the lender and the borrower shall have maintained a healthy operational record, a sound financial management system and internal control system, and have not violated any foreign exchange rules within the preceding three years;

• All outbound direct investment previously made by the lender shall have been duly approved by and registered with the competent authorities and Safe. For lenders established for more than one year, they will have achieved second grade or above in the latest annual joint inspection on their outbound investment; and

• For the loans which have been advanced with approval, no default has occurred in the last drawdown.

Loan quota

The branch office of Safe where the lender is located (the Local Safe) is responsible for approving and registering loan quotas.After the quota is approved, the lender may remit the funds to its overseas subsidiaries in one instalment or several instalments. Generally speaking, the outstanding loan amount shall not exceed the lower of (1) 30% of shareholders' equity of the lender and (2) the contractual amount of investment to be made by the borrower and registered with the authorities. In case a higher quota becomes necessary, the Local Safe must submit such application to Safe Head Office for approval following pre-review by the Local Safe.

The approved quota is valid for two years. The lender may apply for the renewal of the quota within one month before the expiry of the quota.

Step one: the lender submits the application materials to Local Safe. The main documents to be submitted include, but are not limited to:

• Application form indicating the basic information of both the lender and the borrower, the loan quota, the source of the loan, and the lender's commitment related to the overseas loan;

• Loan agreement or trust loan agreement, indicating the principal, interest rate, term, form of security and the form of repayment of the principal and interests, etc.;

• Latest audited financial statement of the lender and its business licence with evidence of having passed the annual inspection;

• Statement regarding the utilisation and repayment of the overseas loans that have been advanced by the lender; and

• Foreign exchange registration certificate regarding outbound investment and the latest audited financial statement of the borrower.

Step two: the Local Safe approves or rejects the application. The Local Safe will usually make its decision as to approving or rejecting the application within 20 working days after receiving all of the application documents.

Step three: the lender opens a special account. The lender shall, upon approval by the Local Safe, open a special account for the loan (the Special Account) at a designated foreign exchange bank. The lender is required to wire the funds into the Special Account as the whole loan amount can only be remitted out of China through the Special Account.

Step four: the lender remits the funds to its overseas subsidiary. The lender must submit the application to the Local Safe for remitting the funds from its Special Account to the offshore account of its overseas subsidiary.